Redstone Government Consulting Blog | DFARS Business Systems (5)

Yes, the door just opened for potential relief from unanticipated inflation on fixed-priced contracts, but what’s beyond the door is still unclear. This year’s National Defense Authorization Act (NDAA) includes Section 822, Modification of Contracts to Provide Extraordinary Relief Due to Inflation Impacts, which builds upon DoD’s September 9, 2022, inflation guidance through use of FAR Part 50, Extraordinary Contractual Actions and the Safety Act, requests submitted to your contracting officer to provide an upward adjustment (increase contract value) and this can be done for prime and subcontractors. Note that this NDAA section does not create an obligation for the Government to pay for unanticipated inflation, but it is a “discretionary” expenditure where the Government may pay for the effects of unanticipated inflation. What remains to be seen is exactly how and how much will be provided to your contract(s).

Effective for tax years after December 31, 2021, companies that have research and development expenditures will be required to amortize their R&D costs instead of deducting them in the current year. So, what is the impact – an increased tax bill beginning in 2022.

The Department of Defense (DoD) released new final rulings on October 28, 2022, but what are they and are they really important? Let’s look at significant ones and what’s important:

Office of Management and Budget (OMB) issued a memorandum dated September 14, 2022, Subject Enhancing the Security of the Software Supply Chain through Secure Software Development Practices. This is a result of the President’s Executive Order on Improving the Nation’s Cybersecurity.

The Department of Justice (DOJ) settled one of the first lawsuits related to alleged cybersecurity fraud by Aerojet Rocketdyne, a defense contractor. So how did it begin. Aerojet Rocketdyne hired an employee as the Senior Director for Cyber Security, Compliance and Controls. The employee asserts that Aerojet misrepresented its compliance with the cyber requirements in DFARS 252.204-7012 when communicating with government officials to obtain DOD and NASA contracts between 2013 and 2015. The employee later refused to sign documents stating Aerojet was compliant with the cybersecurity requirements and reported it to the company’s ethics hotline and filed an internal company report. The employee was terminated and filed a qui tam suit alleging cybersecurity fraud under the False Claims Act.

DoD issued a final rule on April 26, 2022, amending the FAR to support the Small Business Administration regulation of including overseas contracts in agency small business contracting goals. The final rule is effective May 26, 2022.

DoD issued a final rule under DFARS Case 2020-D033, effective April 28, 2022, that allows Contracting Officers to rely on a contract issued under FAR Part 12 procedures to serve as a prior commercial item determination on future buys. It only makes sense, that Contracting Officers rely on prior FAR 12 contracts instead of recreating the wheel each time a contractor submits a commercial product/service and making the contractor continually support a product/service already determined commercial.

CMMC was put on hold until recently – but is rolling forward again at a high speed. DOD held a CMMC Day Conference in May 2022 stating its goal of submitting a proposed rule in July 2022 ( no proposed rule to date) and issuing two interim final rules by March 2023. If DoD is able to stay on track (which does not appear to be the case) and issue the final interim rule by March 2023, contractors could start seeing CMMC requirements in solicitations soon after.

Contractor compliance with National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171 is back in the news. The Principal Director, Defense Pricing and Contracting (DPC), issued a memorandum dated June 16, 2022, to the Department of Defense Departments, Subject: Contractual Remedies to Ensure Contractor Compliance with Defense Federal Acquisition Regulation Supplement Clause 252.204-7012, for contracts and orders not subject to Clause 252.204-7020; and Additional Considerations Regarding National Institute of Standards and Technology Special Publication 800-171 Department of Defense Assessments.

Yes, they are! Did your company make it through its year-end and closing of last year’s books? If so, hooray! But is it really over for those that have Government cost-type contract billings? Not really. OK, as the Federal Acquisition Regulation (FAR) 42.704, Billing rates, allows interim payments through contract performance with the intent of making the contracting officer or contract auditor approved provisional billings rates as close as possible to the expected final indirect rates. This allows you to bill your costs throughout the year of your cost-type Government contract billings. Now that you know what the year-end indirect rates really are, there is one more thing to do: adjust the provisional indirect billing rates to actual rates in a Public Voucher (Standard Form 1034). Those year-end indirect rates should be net of any unallowable costs in FAR Part 31, Contract Cost Principles and Procedures. Sounds easy. It really should not be that difficult.