Redstone Government Consulting Blog | DCAA Audit Support (13)

As we (Redstone Government Consulting, Inc.) began to plan our September 21, 2017 Redstone Edge, we sought out speakers and potential attendees from government agencies, including those from DCAA (Defense Contract Audit Agency) and DCMA (Defense Contract Management Agency). In both cases, their potential speakers had a list of questions which seemed to be unnecessary, but related to OGE (Office of Government Ethics) regulations and interpretations, to identify and otherwise prohibit anything which might be an illegal (or at least unethical) gratuity. Although we might not be a “government contractor”, for those who are, there is another regulation in play; FAR 52.203-3 prohibits government contractors from offering gratuities to government employees.

Companies that incur significant costs for training and education of their workforce should have formal policies and procedures in place to ensure reimbursement on their government contracts and subcontracts.  As with all types of costs, there are three major components to consider: allowability, allocability and reasonableness.

Wage Determination Fact Finding

In ASBCA Case No. 61040, 61101, Sonoran Technology appeals their claim for an equitable adjustment due to an increase in the Service Contract Act Wage Determination after contract award.  The solicitation that controlled this contract award included a SCA wage determination and a Collective Bargaining Agreement (CBA). The bidders were required to use the current SCA wage determination (at the time of the bid) in the formulation of their proposals submitted to the Government.  For future increases in SCA wages and/or benefits, the FAR and the contract have provisions/clauses which cover a contract price change for a wage determination for a multi-year contract.  The issue here whether a new wage determination, incorporated into the contract, prompted a responsibility for the government to adjust the contract price to compensate Sonoran for a corollary increase in its state gross receipts taxes.

The objectives of a timekeeping system are to ensure that labor costs are accurately and timely identified as either direct or indirect in the accounting system.  For certain contract types (e.g. cost-type), these accumulated labor costs are reported and billed to the customer.  It is the contractor’s responsibility to ensure that the labor costs posted in the timekeeping system are proper and reliable. 

Congressman Mac Thornberry recently introduced the “Defense Acquisition Streamlining and Transparency Act” to improve the acquisition system and workforce, and improve transparency in the acquisition system. Click here to download the 80-page bill.

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”.

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.

Whether you are new to government contracting or have been “in the game” forever, it’s not unusual for employees to get caught up in the events of the day and overlook the importance of obtaining and maintaining adequate supporting documentation in the support of pricing proposals (pre-contract award) and actual costs – both direct and indirect (post-contract award).  In a perfect world, employees are properly trained on adequate supporting documentation and documenting the appropriate files accordingly. But we aren’t living in a perfect world, and we even debate over what adequate supporting documentation entails.

Contractors subject to FAR 52.216-7, “Allowable Cost and Payment” clause are required to submit, to the cognizant contracting officer and DCAA auditor, an electronic final indirect cost rate proposal in accordance with FAR 42.705-1(b)(1) within six months after the end of the contractor’s fiscal period. This final indirect cost rate submission will primarily be used to establish final indirect rates; however, it has evolved to also serve the purpose of establishing total allowable (direct and indirect) contract costs. DCAA has recently released a new version of the ICE Model, which is the electronic version of the “Model Incurred Cost Proposal” which provides contractors with a standard ICE submission for preparing adequate incurred cost proposals in accordance with FAR 52.216-7, “Allowable Cost and Payment.” This version, 2.0.1f (released in October 2016), may be downloaded from the DCAA website. There were no computational changes to the newly released version; only minor changes to headings and abbreviations. The following are the changes:

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.