Redstone Government Consulting Blog (74)

Non-U.S. contractors have many misconceptions as to what rules and regulations they must comply with under U.S. Government contracts. The two most common misunderstandings non-U.S. entities have are (1) their country laws trump U.S. laws and regulations, and (2) Federal Acquisition Regulations (FAR) rules on cost collection and allocations are less strenuous for non-U.S. contractors. These two misconceptions could not be further from the truth.

Coming as no surprise, President Obama signed the Bi-Partisan (2014) Budget Act on December 26, 2013 including an executive compensation cap of $487K (coincidentally one-half of the most recent statutory cap of $952,308 and significantly lower than an alternate bill with a cap of $625K).  This maybe Obama’s “crowning achievement” over his two terms proving that if someone (The President) whines enough and ignores all of the regulatory history and the fundamental principle that commercial prices constitute a reasonable cost, he will achieve his goal of forcing large government contractors to absorb more and more of their executive’s compensation.  It should be noted that the prior cap and the methodology was based upon compensation of publicly traded corporations with $50 million or more in revenues; hence, that cap was artificially low considering that a number of large government contractors have revenues in the billions and that executive compensation is correlated to company size/revenues.

With the House of Representatives having passed its version of the FY 2014 National Defense Authorization Act (NDAA), as well as a federal budget agreement, both of which establish new guidelines and annual ceilings on allowable government contractor executive salaries, the question is what will the Senate do with both agreements when they address those specific revised caps. Moreover, because the House-passed federal budget and the NDAA have different annual compensation caps and contractor personnel to which these caps would be applicable, will these differences be reconciled in final versions of both budget and NDAA agreement?

In what seems to be a never-ending whipping of government contracting agencies for issuing cost reimbursement contracts to contractors, the Department of Defense Inspector General (DODIG) issued a report citing the Missile Defense Agency (MDA) and the Defense Microelectronics Activity (DMEA) for circumventing regulations requiring documentation supporting the award of cost reimbursable contracts. The reported findings only cite contracting agency documentation lapses and do not, as with other IG reports on this subject, set forth any factual information or examples that connect the documentation deficiencies to actual government contractor cost overruns or misuse of contract funds.

OK for Government Employees, but not Contractor Employees

As a by-product of government shutdowns, we’ve now seen two occasions where government employees were paid for non-productive time while in furlough status (in fact, the furloughed employees were explicitly prohibited from working notwithstanding the fact that in both 1995 and now in 2013, employees were “made whole” once the government was funded.  Although it was through no fault of the government employees who have been compensated for non-productive time, the fact remains that the taxpayer is footing the bill for idle, non-productive time on the part of thousands of government employees.

The Affordable Care Act (ACA, also known as Obamacare) continues to be an embarrassment to the current administration and those in the Legislative Branch who voted to pass the Act (but apparently failed to read it before voting).   In addition to the dysfunctional website, we now know that other means to “sign-up” were not exactly good alternatives because the other means (i.e. telephone or written application) ultimately depended upon HealthCare.gov, but if you talked to someone and they took your information, at least it felt like you were signing-up.   Perhaps that’s what is meant by the over used term transparency.

On September 5th, DCMA issued a letter to the National Defense Industrial Association (NDIA) addressing industry concerns raised at a meeting with DCMA on April 25, 2013.  We will highlight some key points in the letter that will help contractors deal with DCAA’s assertions which often times are not supported by regulations. The letter reinforces that it is DCMA that determines if a contractor’s business system is compliant or not and if a Corrective Action Request (CARs) is necessary.

I recently watched an amazing video of an F-16 fighter jet being flown without pilots.  Watching this video helped me figure out what’s wrong with DCAA.  This fighter jet flew and worked properly without a pilot.  Unfortunately, DCAA HQ has been without pilots for quite some time but unlike the F-16 the audit agency can't do its job.