What are the circumstances necessitating the use of a letter contract which is also referred to as an undefinitized contract? The main circumstance is the government’s interests demand that the contractor immediately begin work and negotiating the final contract price (definitized) isn’t possible in order to meet the needs of the buying activity. Letter contracts should only be used when the work needs to immediately begin and there isn’t sufficient time to agree on the final terms and conditions. The government and prime contractors use letter contracts to immediately start work and then set a schedule to work towards negotiating to the finish line.
DoD-IG goes after DCMA for not supporting DCAA Findings
On February 26, 2021, the DoD-IG issued an audit report raising significant concern about the actions taken by DCMA Administrative Contracting Officers (ACOs) in relation to DCAA audit findings. The Finding section of the DoD-IG report found that out of 30 DCAA audit reports at two of the largest DoD contractors, 14 were not properly addressed per Federal Acquisition Regulation requirements by the cognizant ACO. Our guess and POGO believes the large DoD contractors are Lockheed Martin and Boeing – but this is only our guess. The DoD-IG report goes on to state that: “As a result, DCMA contracting officer actions on the eight audit reports may have resulted in improperly reimbursing DoD contractors up to $97 million in unallowable costs on Government contracts. In addition, because DCMA contracting officers did not take timely action on six audit reports, they delayed the correction of CAS noncompliances and the recovery of any increased costs due to the Government.” The report goes on to state that: “The Defense Contract Management Agency Director agreed with all five recommendations,” including reviewing ACO decisions to “Disallow and recoup any unallowable costs not previously disallowed.” (Evaluation of Defense Contract Management Agency Actions Taken on Defense Contract Audit Agency Report Findings Involving Two of the Largest Department of Defense Contractors – DoD-IG-2021-056, Dated February 26, 2021)
Where does DCAA’s View of the Contractor and their Role in Acquisition Come From?
DCAA Auditor Training
DCAA website provides that new auditors receive in-depth professional training from DCAA’s Defense Contract Audit Institute (DCAI), along with on-the-job training at their assigned field audit office. DCAI is located in Atlanta, GA and provides auditors with an excellent basis on which to start their careers in contract audit. Many at Redstone GCI can speak from personal experience that, once you get past the exciting MARTA ride from the airport, the instructors at DCAI provide a good hands-on learning environment. However, we are not sure if it is a subliminal message piped into the classroom or local indoctrination at assigned field offices, but the auditors are coming away with the impression that no contractors can be trusted, and a good audit opinion has to include questioned cost.
Topics: Compliant Accounting Infrastructure, Litigation Consulting Support, Incurred Cost Submission, Defense Contractors, DOD IG, Government Compliance Training, DFARS Business Systems, Incurred Cost Proposals, Cost-Type Contracts, DCAA Audit Support, FAR, Government Regulations, DOD Contractors, Cost Accounting Standards (CAS)
Let’s Set the Stage
So as a contractor you have received several cost-based contracts (i.e., subject to FAR part 31), however they have all been less than $7.5M. You are flying under the Cost Accounting Standards (CAS) radar. You get a $9M cost-based contract that does not meet any of the exceptions to CAS covered listed at 9903.201-1(b) – categories of contracts and subcontracts exempt from all CAS requirements. The dreaded “trigger contract.”
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).
Need some simple suggestions for basic contract management? This is a follow on to the previously published blog, Simple but Effective Subcontract Management Suggestions. Below are a few suggestions to consider when initiating and managing your prime contract within your contracts group.
Need some simple suggestions for basic contract management? Setting aside regulations in government contracting and all the complexities, there are a few steps you can take which reduce some of the workload and stress upon contract award. Below are a few suggestions to consider within your infrastructure.
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: Business Systems Review, Cost and Pricing and Budgeting, Incurred Cost Submission, Small Business Compliance, Contracts Administration, Defense Contractors, DFARS Business Systems, Incurred Cost Proposals, DCAA Audit Support, FAR, Contractor Purchasing System Review (CPSR), Government Regulations, DOD Contractors
Contractors with cost reimbursable contracts that include the Allowable cost and payment clause, FAR 52.216-7 or Payments under Time-and-Materials and Labor-Hour contracts clause, FAR 52.232-7, are required to submit an Incurred Cost Proposal for each fiscal year costs were incurred on any cost reimbursable contract. This incurred cost proposal is provided to your Administrative Contracting Officer (ACO) and Defense Contract Audit Agency (DCAA) with a deadline of six months after the Contractor’s fiscal year end. Once the Incurred Cost Proposal is received by DCAA, they review it for adequacy. DCAA provides a notification to the Contractor, typically via email, that the proposal is deemed adequate for audit or outlines changes DCAA believes are necessary. That is great to know it is adequate for audit but what does that mean? This means that DCAA has reviewed the incurred cost proposal and determined that the schedules are properly completed for them to begin the audit potentially.
A Little Background
FAR Part 31, Cost Principles, is the regulation that government contractors must follow in order to account for cost on most government contracts. Within FAR Part 31 is FAR 31.205, Selected Costs. This part of the cost principles regulation specifically spells out unallowable cost that the government will not pay for under a government contract. This section starts at FAR 31.205-1 and goes all the way up to FAR 31.205-52. However, it should be noted that FAR 31.205-2, 5, 9, 24, 45, and 50 are “Reserved” – These reserved cost areas went the way of the dinosaur over time, hopefully not to return. For example, FAR 31.204-2, Automatic Data Processing Equipment Leasing Costs, required an annual demonstration that leasing computer equipment was cost-effective, i.e., lowest cost to the Federal Government.
Topics: Incurred Cost Submission, Contracts Administration, Defense Contractors, Government Compliance Training, Incurred Cost Proposals, Cost-Type Contracts, DCAA Audit Support, FAR, Government Regulations, DOD Contractors