Redstone Government Consulting Blog | Contracts & Subcontracts Administration (26)

In a recent DCAA audit policy, DCAA makes note of the 2013 NDAA (National Defense Authorization Act) which requires DCAA to track requests and contractor responses for internal audits and to ensure that DCAA does not use contractor internal audit reports for any purpose other than evaluating and testing the efficacy of contractor internal controls and the reliability of associated contractor business systems.  The reason the NDAA mentions this “limited use” is to diffuse contractor concerns and allegations that DCAA will misuse access to internal audits for so called fishing expeditions.

Loss of Memory or In-Denial?

As most contractors (subject to DCAA incurred cost audits) are aware, DCAA and DCMA were soundly “defeated” in terms of ASBCA rejections of DCAA FAR 31.205-6(b) compensation reasonableness challenges (Reference to J.F. Taylor, ASBCA Cases 56105, 56322 and Metron, ASBCA Cases 56624, 56751, 56752).

Recently the House of Representative unanimously passed a bill prohibiting new federal contracts with companies with seriously delinquent federal tax debts. However, the House failed to pass a similar measure, Federal Employee Tax Accountability Act (FETAA), which could have resulted in terminating government employees with seriously delinquent tax debts. It seems to us that retaining government employees with serious tax debt is equivalent to retaining employees who steal from their employer, but apparently in the view of Democratic Congress-persons (critics of the FETAA), it would be unfair to single out federal workers whose tax compliance is better than the general public. The last we checked, the general public does not work for the federal government and in any case, the specific federal employees who are seriously tax delinquent are not tax compliant so who cares if federal employees collectively are more tax compliant than the general public. 

The continuing trend toward the diminution of pay and benefits for Government employees will have a negative impact on DCAA for many years to come.  Over recent years, and especially the past few, DCAA has lost and will continue to lose its experience and knowledge base.  Once those who can retire and those who can find employment elsewhere do so, the “preeminent” government audit agency with the primary goal of contract audits will be a mere shell of its former self, and many would argue that has already come to pass.  Pay freezes, furloughs, changes in retirement benefits, and overall lack of leadership have had devastating effects on the DCAA auditor rolls and contractors are now seeing the impact of this “Brain Drain.”  These actions, coupled with the Agency’s overreaction to recent GAO and DoD-IG criticism, have resulted in at best inappropriate interpretations and at worst inaccurate uses of government regulations and internal DCAA guidance by auditors with very little experience or direction that in past years was provided by more senior people.

Contractor Agrees to Reimburse Employees for Back Wages after Cited SCA Violation

An investigation conducted by the U.S. Department of Labor’s (DOL) Wage and Hour Division for compliance with the McNamara-O’Hara Service Contract Act (SCA) and the Contract Work Hours and Safety Standards Act (CWHSSA) revealed that CH, Inc. violated the provisions of these two statutes by underpaying 35 employees $268,899 in fringe benefits and overtime which, under the statutes, those employees were entitled to receive.

The Department of Defense Inspector General(DOD IG) issued a March 7, 2013 report charging that the Defense Contract Audit Agency (DCAA) failed to “exercise sufficient professional judgment” while performing certain audits between 2006 and 2010 signaling another bump in the long road ahead for the Agency's return to compliance with GAGAS. 

The Defense Department on February 21 revoked a relatively new payment process that was designed to get cash in the hands of contractors and subcontractors quicker. This revocation of the “Quick Pay” initiative is due to sequestration activities and will cause payments to be delayed by at least 10 days but conceivably even more. Prior to the Quick Pay initiative, which began in 2011, DoD would hold a bill for 30 days to minimize the amount of cash it pays out. The Quick Pay initiative was instituted as a way to get payments to small businesses faster by assuring that small businesses were paid as soon as a bill was verified. The initiative was then expanded in July 2012 to prime contractors as a way to assist those companies’ small business subcontractors. Under the initiative, defense contractors were paid in about 15 to 18 days. 

As 2013 begins, the most significant challenge for all government contractors is sequestration (or major government agency budget reductions). We do know that there will be fewer procurement dollars and in doing its part to reduce government spending, DCAA (Defense Contract Audit Agency) has one clear self-declared mission, “Protecting the Taxpayer” even when such protection is inconsistent with applicable regulations as well as published decisions related to contract disputes.  Although there are ultimately more than four challenges, we believe the following categories top the list where DCAA assertions are  ”out on a regulatory limb” in challenges for government contractors.