The recent memo from the Defense Pricing Center (DPC) has created quite the stir around the current economic uncertainties in the government contractor community tied to inflation. The unfortunate reality is that for many years, economically speaking, the risk of inflation has been a steady 2-3% and so both contractors and the acquisition professionals on the other side have not had to realistically consider this factor in pricing/negotiating contracts. History has shown us that the threat is all too real and can cause significant hurdles for contractors to weather an inflationary period like we saw in the 80s, early nineties and as recently as 2009. The question of is it transitory or are we headed toward a recession is best left to our friend the magic 8-ball, but I do think there are a few things that all contractors should be aware of during this time.
Does the Total of All Proposed Subcontract Costs Exceed 70% of the Total Contract Costs?
Is your company submitting a proposal to the government/prime contractor that includes a total of all subcontract costs exceeding 70 percent of the total costs proposed? If so, you must identify “added value” in your proposal so the government/auditor does not classify the indirect cost applied to the total subcontract cost as “excessive pass-through charges.” The government considers indirect costs and profit/fee that a contractor applies to subcontract costs that exceed 70 percent of the contract to be “pass through costs.” This applies to lower tier subcontract costs also. If there is no negligible value added by the contractor, the government or auditor will question the indirect costs and profit/fee applied to the subcontract costs as unallowable excessive pass through under FAR 31.203(i).
Topics: Compliant Accounting Infrastructure, Cost and Pricing and Budgeting, Incurred Cost Proposal Submission (ICP/ICE), DFARS Business Systems, Cost-Type Contracts, DCAA Audit Support, Contractor Purchasing System Review (CPSR), Government Regulations
What is the Commercial Item Group (CIG)?
So, what is the DCMA CIG? They are the “cadre of experts” established under DCMA as a result of Section 831 of the FY 2013 National Defense Authorization Act (NDAA). The purpose of the CIG is to assist DoD contracting officers in making commercial item determinations. There are several DCMA ACO’s that have warrants specific to making commercial item determinations on contractor assertions or higher-tier contractor determinations of its supplier’s assertions at the request of a buying command. DCMA CIG has price analysts and engineers that perform market research, evaluate the commercial submission, determine whether pricing is fair and reasonable as well as provide negotiation support.
DCAA has caught up on their incurred cost backlog and is concentrating effort on Truth in Negotiations Audits (i.e., Defective Pricing). The objective of the Truth in Negotiations audit is to determine whether a negotiated contract price was increased by a significant amount because a contractor did not submit or disclose current, accurate or complete cost or pricing data.
Deltek Costpoint Planning provides access to up-to-date, accurate information for developing, adjusting, auditing, approving, and re-forecasting project budgets and annual operating plans. We usually see three types of users in the Planning module: Business Development, Project Managers, and Project Control/Financial Analysts. Business Development users have access to develop new business budgets. Project Managers can create project budgets and run meaningful reports allowing them to make real time decisions and properly manage their programs. Project control/financial analysts can develop organization budgets and reconcile corporate and project budgets more accurately to better forecast their indirect rates.
The National Institutes of Health Acquisition and Assessment Center (NITAAC) released its long-awaited Request for Proposal (RFP) for the Chief Information Officer – Solutions and Partners (CIO-SP4) program on May 25, 2021. Phase I of the evaluation of offeror proposals will consist of validation of the offeror’s completed self-scoring sheet and ranking the offerors based on this scoring. Only the highest rated offerors will advance to phase 2 of the evaluation. Accordingly, every point counts!
A commercial item determination should define the item or service, document market research, identify the FAR 2.101 Commercial Item definition, and include a “determination” that the item is commercial. Sounds easy right!
If you look through the DCAA audit guidance and the DCMA Contractor Purchasing System Review guidance, you would think that the Government is only concerned with a Commercial Item Determination when the purchase value exceeds $2M. This is all based on commerciality being an exception to the requirement for certified cost or pricing data at FAR 15.403-1(b)(3) & (c)(3).
What’s new in this long-standing area?
The FAR Council at long last issues final rule to implement the Trump Executive Order 13881, Maximizing Use of American-Made Goods, Products, and Materials. Only a few days later a Biden Executive Order 14005, Ensuring Future of America is Made in America by all of America’s Workers, hit the streets.
Topics: Cost and Pricing and Budgeting, Incurred Cost Proposal Submission (ICP/ICE), Small Business Compliance, Contracts Administration, Defense Contractors, DFARS Business Systems, DCAA Audit Support, Contractor Purchasing System Review (CPSR), Government Regulations, Federal Acquisition Regulation (FAR)
Here are the Details
DoD issued a DFARs Final Rule D2019-D029 – Services Provided by Nontraditional Defense Contractors, effective October 1, 2020, to implement several sections of the National Defense Authorization Act for Fiscal Year 2017 that addresses treatment of commingled items purchased by contractors and services provided by nontraditional defense contractors as commercial items. This blog only addresses the DFARS change related to services provided by nontraditional defense contractors as commercial items.
Topics: Cost and Pricing and Budgeting, Defense Contractors, DFARS Business Systems, DCAA Audit Support, Contractor Purchasing System Review (CPSR), Government Regulations, Federal Acquisition Regulation (FAR)