Redstone Government Consulting Blog | Contracts & Subcontracts Administration (19)

Virtually all government contractors and anyone else hoping for regulatory relief from the new administration is aware of the Executive Order (EO) requiring a 2 for 1 reduction in agency regulations for each new regulation. In an effort to show that DCAA is politically savvy and much more positive and proactive than most agencies (who are less than enthusiastic about this EO), DCAA has begun to vet some “similar to” audit strategies. The following are some of the highlights of a DCAA Press Conference to announce a broad range of “2 for 1 reductions”.

With a Presidential Memorandum halting all proposed federal regulations that have not yet taken effect and pausing the Department of Labor’s (DOL) appeal of the nationwide injunction on the overtime rule which would double the minimum salary for exempt status, we are curious how the new administration will impact employer responsibilities, particularly those of federal contractors. While we certainly hope for some respite, we won’t speculate on what might happen, and we continue to encourage employers to be diligent in compliance with those regulations which have recently taken effect as well as those that employers have been slow to tackle.

Since most incurred cost proposals (ICPs) are due June 30, it is a good time for contractors to review the DCAA criteria for audit selection in order to minimize (where possible) the potential that their ICP will be selected for audit. All ICPs with an auditable dollar volume (ADV) greater than $250 million are automatically selected for audit. ICPs with an ADV between $100 million and $250 million of ADV that have not been audited in the last 3 years are also automatically selected for audit. ADV is determined by the amount of cost reimbursable, i.e. cost type and T&M, contract revenue for the fiscal year.

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.

In the recently published ASBCA Nos 59508 and 59509, the ASBCA agreed with the contractor and dismissed the government claim (final decision) which had disallowed $116,789,631 (subcontractor costs as components of direct costs claimed by the prime contractor).   The premise for the (failed) final decision was DCAA’s assertion that the prime contractor had breached its contractual duty to “manage” the prime contractor’s subcontracts and subcontractors.   The reference is FAR 42.202(e)(2) which states that the prime contractor is responsible for managing its subcontracts. In context, that clause makes it clear that the government (Contracting Officer) is only responsible for administering the prime contract. In contrast, and only by implication and a legal theory created by a DCAA auditor, the prime contractor assumes certain FAR Part 42 responsibilities for subcontracts.

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.

Service Contract Labor Standards and Davis-Bacon Act

Government contractors are subject to many rules and regulations, and many contractors don’t always pay attention to the labor standards requirements incorporated into their contracts. Employers often worry about ensuring employees are properly being paid overtime and classified as exempt or non-exempt, but is your company really paying the appropriate pay rate and benefits that may be part of your contracts? Odds are if your company is performing services under a federally funded government contract, the Service Contract Labor Standards (SCLS), Davis Bacon Act (DBA), and/or Collective Bargaining Agreements (CBA) are likely part of your contracts.

Quite often our clients ask for guidance or research on a particular compliance or cost accounting topic. These types of requests generally result in a run through the usual suspects for guidance, like FAR and CAS; and the customer agency's acquisition supplement like DFARS or DEARS. What many people don't realize is that there is a wealth of other publicly available information that can shed light on some of the more subjective aspects of these regulations.

Whenever there is a scope change on fixed price contract, there are several steps that take place. First, is preparing a proposal for the amount of the scope change and negotiating that change with the contracting officer. If the contracting officer issues a final decision (unilateral contract modification) that does not result in a satisfactory amount of recovery, the next step is to submit a request for equitable adjustment (REA). If again, the final decision does not provide adequate recompense, the next step is often appealing the decision to the Armed Services Board of Contract Appeals (ASBCA). This is not an option to be taken lightly, as a recent decision proved.