Redstone Government Consulting Blog | Contracts & Subcontracts Administration (21)

I recently delivered a presentation at the National Contract Management Association (NCMA) World Congress on the July 15, 2014 DoD proposed changes to DFARS business system Rules (DFARS Case 2012-042) for contractor accounting systems, estimating systems, and material management and accounting systems (MMAS).  A public hearing on the proposed changes is scheduled for August 18, 2014 and comments are to be submitted on or before September 15, 2014.  As noted in previous blogs, the new rules do not apply to small businesses or to other DFARS defined business systems (purchasing, EVMS, Government property).

As published in the Federal Register on May 6, 2014 the Department of Defense has issued a final rule amending the DFARS to require certain qualifying contractors to adequately address the detection and avoidance of counterfeit electronic parts.  This was done to implement those sections of the NDAA for fiscal years 2012 and 2013 respectively dealing with the same subject and is effective May 6, 2014.

As required by Section 702 of the 2014 Bipartisan Budget Act (BBA) signed by President Obama on December 26, 2013, the June 24, 2014 Federal Register includes an interim rule setting the FAR 31.205-6(p) executive compensation statutory cap at $487K (coincidentally a 49% reduction from the most recent statutory cap of $952,308).   The June 2014 rule notes that it also implements a possible “narrowly targeted” exception to this cost limit for scientists, engineers or other specialists upon an agency determination that such exceptions are needed to ensure that the executive agency has continued access to needed skills and capabilities.  The interim rule also includes a comment period which is for 60 days after the Federal Register publication date (June 24 to August 23, 2014).

On March 25, 2014, President Obama issued executive orders raising the minimum wage to $10.10/hour for contractor employees on government contracts.  The logic, the hardworking cooks serving hamburgers to our troops should not be living in poverty (most likely a reference to the fast food chains which are located on military installations).  Simultaneously, he also directed the Department of Labor to change the federal rules to make more “salary exempt” employees eligible for overtime pay.   The current threshold of $455/week will likely be increased to a significantly higher amount noting that the last change (April 2004) increased the amount from $155/week to $455/week.  The higher amount could be as much as $950/week in which case someone earning $949/week would be eligible for overtime pay (including overtime premium) for hours exceeding 40 hours per week.   In one press release, the Department of Labor used one example of the severe inequity of the existing threshold $455/week), noting that two “hardworking” gas station managers in New Jersey were effectively making less than minimum wage.

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.

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.

The National Defense Industrial Association’s (NDIA) September Procurement Division Committee meeting provided insights and information that we believe is of  interest to our readers.  These comments are our own interpretations and opinions based upon our presence at the meeting.