Redstone Government Consulting Blog | Compliant Accounting Infrastructure (20)

We often hear the following statement and question: “My proposal (the government solicitation) calls for a compliant accounting system (SF 1408) and I’ve never been audited.  What do I do?”.

To the uninformed, there may be little or no distinction between the three adjectives which could apply to a contractor (or potential contractor) accounting system. To those dealing with the terminology in government solicitations, there may appear to be no significant distinction because the words seem to be used interchangeably. For example, an Air Force solicitation may have a prerequisite for an adequate accounting system, in contrast to Navy solicitation which substitutes the words acceptable accounting system. Then a third alternative could be a solicitation which gives competing bidders points for approved systems; i.e. 500 points for having an approved accounting system. In most cases, the solicitation links the accounting system status (adequate, acceptable or approved) to an action (written opinion or written determination) by a federal government agency or, less frequently, an opinion by an independent third party such as a CPA or consultant. There is a fourth alternative, an accounting system which has never been reviewed by any independent party (government or otherwise). In this case, a contractor (or a potential contractor) may have an accounting system awaiting its first test, so to speak.

It’s a busy time of year for us and many of our clients, but I wanted to take this opportunity to remind all of our readers of a few upcoming things to keep in mind. For most of our clients, January was a whirlwind of closing 2016 and getting all W-2s and 1099s completed. February will be spent ramping up for financial statement audits and the corporate tax deadline, but for government contractors there’s also a few extra things to do this time of year.

Understanding the requirements and/or selection criteria before preparing a fully responsive bid to a government solicitation cannot be understated. In a recent decision (B-413559.2; B-413559.8) by the Government Accountability Office (GAO), two separate government contractors’ protests questioned the government’s evaluation scheme. Specifically, the protesters argued that certain terms contained in the request for proposal (RFP) were unduly restrictive. The protestors were ultimately challenging their respective elimination from competition based on the fact that they did not score high enough to be included in the top 60 technically rated offerors.

Adhering to the requirements of a government solicitation is paramount when submitting a proposal. In a recent decision (B-413104.5; B-413104.6) by the Government Accountability Office (GAO), two separate government contractors’ protests were denied for failure to meet the explicit requirements of a solicitation for the Department of Health and Human Services, National Institutes of Health (NIH). The protestors were ultimately challenging their respective elimination from competition based on the fact that the non-responsibility determination should have been referred to the Small Business Administration (SBA) under SBA’s certificate of competency (COC) procedures.

One of the most important parts of a proper response to a Government Solicitation is the Basis of Estimate(s) (BOE). The BOE is a tool that is carefully developed by members of a project team through intricate analysis of the Performance Work Statement (PWS) in order to calculate the total price for the required effort. The BOE must be developed before the pricing can take place so that the pricing team knows the cost elements, which will require pricing. To put it differently, the BOE is an estimate developed to outline a Company’s expected staffing and solutions for the selected Government solicitation. This proposed estimate is combined with detailed explanations and supporting rationale which bolsters the overall conclusion. The BOE needs to be able to show the level of services (proposed labor), the skill mix required, materials, travel, etc., that will be required to deliver what is requested through the solicitation. In order to provide a realistic estimate, technical experts should be utilized in order to appropriately determine the work effort needed. The details in the BOE need to be sufficient for the technical evaluator (government or prime contractor) to understand the rationale used, the source of the underlying data, the detailed calculations involved, and the basis for any complexity factors.

In a report issued on July 26, 2016, the DOD- IG (Department of Defense Inspector General) concluded that DFAS (Defense Finance and Accounting Service) and the Department of the Army (Army General Fund or AGF) failed to support $4.44 Trillion in JV (Journal Voucher) Adjustments.   

Provisional billing rates are established by either the ACO (Administrative Contracting Officer) or DCAA (Defense Contract Audit Agency).   As described in a 2014 DCAA Audit Policy (MRD 14-PPS-012, dated July 22, 2014), per FAR 42.704, provisional billing rates should be established early within a contractor fiscal year for purposes of invoicing indirect costs (on cost-type contracts or any contract which ultimately requires final indirect cost rates per FAR 42.705).   For anyone familiar with FAR, it is self-evident that provisional billing rates are based upon FAR Part 42, which details contract administration versus proposal contract pricing, (typically FAR Part 15, if cost or pricing data is required).   Although there may be similarities, the proposal process involves solicitation clauses, whereas a contract award contains contractual clauses.

The Bipartisan Budget Act of 2013 (BBA) has changed the game for executive compensation limitations yet again. Before 2012, US Government contracts subject to the FAR Part 31 Cost Principles were subject to the applicable fiscal year (FY) Compensation Cap established by the OMB (Office of Management and Budget) on the five most highly compensated employees in management positions. This changed again for contracts awarded from January 1, 2012 through June 23, 2014 to apply to all contractor employees performing DoD, NASA, and Coast Guard contracts, but apply only to the top five executives for remaining agencies. Every year the Office of Management and Budget publishes a memorandum to the Heads of Executive Departments and Agencies announcing the “benchmark compensation amount” for certain executives and contractor employees. During contractor’s fiscal years 2013 and 2014 the executive compensation dollar limitation was $980,796 and $1,144,888, respectively. Now, the BBA limits how much a contractor could charge the federal government for an employee’s compensation to $487,000 to all contractor employees for new contracts subject to FAR 31.2 awarded on or after June 24, 2014. This provision limitation change within a fiscal year has caused a contractor to be subject to multiple employee compensation caps (FAR 31.205-6(p)) within the same fiscal year.

Over the course of 2015, one of our accounting services consultants, Katie Donnell, made four week long trips to Unanet Headquarters in Dulles, VA for training classes to implement and operate Unanet software.