Redstone Government Consulting Blog (9)

The government can terminate a contract, in whole or in part, through special contract clauses referred to as "termination clauses." Contract termination can happen for reasons such as lack of funding, bid protests, changes in military strategy, technological advancement, federal operations, or national political agenda that change the government's needs. However, what are the different types of termination proposals and forms required? This article will sort out the maze of what needs to be done and submitted.

Current FAR Requirements

Federal Acquisition Regulations (FAR) 42.101 provides that normally, “the Defense Contract Audit Agency (DCAA) is the responsible Government audit agency.” While DCAA’s website states “DCAA provides audit and financial advisory services to DoD and other federal entities responsible for acquisition and contract administration.” DCAA only has appropriated funds to provide services to the Department of Defense (DoD). All other federal agencies must pay for DCAA services. This can make a decision related to the necessity of an audit service a budget-based decision. Today, DCAA is current on the required incurred cost audits of contractors with DoD contracts, but contractors with mostly National Aeronautics and Space Administration (NASA) contracts are years behind in their required incurred cost audits. If, as the FAR states, “DCAA is the responsible Government audit agency,” why is it not a Federal audit agency (dare we say – FCAA)? This would make things much easier for NASA and other federal agencies that need their contracts audited. However, given that this isn’t the case, DCAA is not the only option for federal agencies. Many agencies other than DoD have contracted with third-party CPA firms to get necessary audits performed.

Cost Accounting Standard (CAS) 408 was put in place to provide consistency in the measurement and allocation of vacation, sick leave, holiday, and other compensated personal absences. Today, many contractors refer to all paid time off as “PTO.”

In November of 2023, DoD issued a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to partially implement a section of the 2017 National Defense Authorization Act (NDAA) addressing the Federal Acquisition Regulations (FAR) and DFARS contract clauses impacting prime or higher-tier contractors issuing commercial subcontracts for commercial products, including commercially available off-the-shelf items, and commercial services.

Government regulations can be complex and perhaps even confusing. For those of you experienced in Government contracts and even contract audits, you have heard of the Federal Acquisition Regulation or FAR and, FAR Part 31, Contract Cost Principles and Procedures. The scope of this part describes the applicability of the cost principles and procedures in pricing and accounting for costs on contracts, subcontracts, and modifications whenever cost analysis is needed. There is a lot there, but what’s really important? Well, I will not try to duplicate what can be at least a day course within this blog, but I will highlight three areas that are really important.

Last year, we wrote about the Department of Defense (DoD) proposing a change to the Defense Federal Acquisition Regulation Supplement (DFARS) that would possibly simplify Government property clauses by consolidating four clauses into a single management clause. This became a reality in December 2023 when the DoD issued a final rule consolidating the four clauses into DFARS 252.245-7005, Management and Reporting of Government Property. The new clause had an effective date of January 22, 2024.

On January 10, 2024, the U.S. Department of Labor (DOL) published its highly anticipated “final rule” on independent contractor classifications.[1] As expected, they adopted the “totality of the circumstances” test which means that many more workers will be found to be w-2 employees as opposed to 1099 independent contractors. This rule takes effect on March 11, 2024, and is anticipated to have a significant impact across many industries that rely on contract workers, including government contractors. Under the new rule, many independent contractors will likely be reclassified as employees, which will financially impact employers by way of potential entitlement to company benefits, additional tax implications, and possible exposure to employment-based lawsuits, etc. Furthermore, if a worker is misclassified as an independent contractor but is later determined to be your employee, there is an additional risk of back wages that could be assessed for unpaid overtime, particularly in light of the changes DOL has in store regarding the salary basis for exempt employees. Those proposed changes will be discussed at the end of this article.

Department of Defense (DoD) issued a final rule effective November 17, 2023, amending the Defense Federal Acquisition Regulation Supplement (DFARS) to limit DoD prime contractors from flowing down FAR and DFARS clauses to commercial subcontracts unless the flowdown is specified in the regulation.

The McNamara-O’Hara Service Contract Act (SCA), aka Service Contract Labor Standards (SCLS), requires contractors and subcontractors on covered contracts to provide specified wages and fringe benefits to covered employees (i.e., “service employees”). While that may sound fairly straightforward, there are many nuances and complexities that can cause great concern and angst when working toward compliance with the SCA. At the top of the list of these administrative burdens is the appropriate distribution of Health and Welfare (H&W).

If you have Government contracts, you probably heard of the Federal Acquisition Regulation, or FAR, but how much do you know of its parts? Why is it important to know? How could it possibly impact me?