Redstone Government Consulting Blog | Incurred Cost Proposal Submission (ICP/ICE) (7)

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).

Has the Government Learned Its Lesson?  Your Feedback is requested.

Perhaps the most subjective cost allowability determination process utilized by the Defense Contract Audit Agency (DCAA) is that associated with determining reasonableness of Government contractor employee compensation, more specifically the wages and benefits of senior managers and executives. Government contractors more likely to endure examination and challenging of such compensation are those with cost reimbursable contracts which invoke the audit of annual incurred cost proposals (ICP) via contract payment clauses. The audit review is a highly subjective process with the purpose of determining if annual compensation exceeds a hypothetical “reasonableness” benchmark, using ambiguous criteria contained in FAR 31.205-6(b)(2), i.e., measured to wage surveys reflecting compensation for same job position within companies of same size, same industry, same geographic area, and engaged in same type of non-government work as performed under government contracts. 

As one more indication that DCAA is the puppeteer and the DAR Council are the puppets, the DFARS Final Rule (DFARS Case 2011-D042) requiring a proposal checklist was issued on March 28, 2013.  The proposed checklist and the substance of the final checklist were eerily similar to DCAA’s proposal checklist, which “was” an unconstrained embellishment of anything actually required in the regulations.  The checklist is form over substance and just one more unnecessary document solely to make life easy for DCAA (although not quite as bad as FAR requirements for contractors to provide DCAA with SEC filings as if DCAA auditors are incapable of retrieving these from the readily accessible internet).  The absurdity of the DFARS proposal adequacy checklist rule is self-evident in one public comment and the DAR Council response:

In 2012, DCAA reported to Congress that its 2011 average elapsed days for completing 349 Incurred Cost Proposal audits was 965 days.  As it relates to incurred cost proposal audits, DCAA’s FY2012 audit plan acknowledged its increasing backlog of unaudited incurred costs and also its use of dedicated audit resources (“virtual FAOs”) to reduce the unaudited incurred costs.

The first in a series of videos designed to give an overview of the incurred cost submission.  This video covers the basics of the Incurred Cost Submission, such as it's purpose, the regulation requiring the ICS and when the submission is due.  Be sure to attend our upcoming Incurred Cost Submission Webinar series for more information on preparing your Incurred Cost Submission, ensuring it's adequacy with the DCAA adequacy checklist and working with DCAA auditors during the audit of your ICS or contact us to see how we may be able to assist.  We'll be announcing the dates of the ICS Webinar series soon, so sign up below to receive a notification when the course dates have been posted.