Redstone Government Consulting Blog | Proposal Cost Volume Development & Pricing (4)

5 Things You Need to Know Before Your Update

A recent DCAA audit reintroduced (or resurrected) a DCAA MRD (Memorandum for Regional Directors) dated March 22, 2010 which provided auditors with DCAA’s liberal interpretation of a January 2010 change to FAR 31.205-46(b) limiting allowable airfare to “lowest priced airfare available to the contractor.”

You now understand a little bit more about provisional billing rates from our first of this two-part series. In this second part of our coverage of provisional billing rates, we delve a little deeper into the purpose behind provisional billing rates as well as how to prepare them and the differences between provisional billing rates and proposal bid rates. Knowing these details will enable you to prepare an accurate DCAA submission.

If your unbilled receivables account has you searching for a solution as simple as waving a Harry Potter wand and reciting “Evanesco!” you are not alone. The everyday life of an accountant is chock-full of number-crunching, and then you suddenly realize the “deathly hollows” of year-end is quickly approaching. Whether you are new to the tracking of unbilled receivables or the account has been covered in cobwebs, understanding the creation process to this “chamber of secrets” is where your journey out of the “dark forest” can begin.

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.

As a business owner or executive, it is highly likely that you are not preparing and submitting your business tax return. After all, tax rules are complicated and submission requirements can be a little unnerving. So, for those reasons and for peace of mind knowing that your tax return is prepared correctly, a savvy business owner or executive will outsource their tax preparation to a trusted firm that specializes in taxes.

Accounting for independent research and development costs and bid and proposal costs are found in Far 31.205-18 and Cost Accounting Standards 420. Because FAR 31.205-18 incorporates CAS 420, it does not matter if your company has revenue of $50 million or under $5 million; if you have IR&D and B&P costs, this Cost Accounting Standard (CAS) provides the criteria for accumulation and allocation of those costs.

To the uninformed, there may be little or no distinction between the three adjectives which could apply to a contractor (or potential contractor) accounting system. To those dealing with the terminology in government solicitations, there may appear to be no significant distinction because the words seem to be used interchangeably. For example, an Air Force solicitation may have a prerequisite for an adequate accounting system, in contrast to Navy solicitation which substitutes the words acceptable accounting system. Then a third alternative could be a solicitation which gives competing bidders points for approved systems; i.e. 500 points for having an approved accounting system. In most cases, the solicitation links the accounting system status (adequate, acceptable or approved) to an action (written opinion or written determination) by a federal government agency or, less frequently, an opinion by an independent third party such as a CPA or consultant. There is a fourth alternative, an accounting system which has never been reviewed by any independent party (government or otherwise). In this case, a contractor (or a potential contractor) may have an accounting system awaiting its first test, so to speak.

One of the most important parts of a proper response to a Government Solicitation is the Basis of Estimate(s) (BOE). The BOE is a tool that is carefully developed by members of a project team through intricate analysis of the Performance Work Statement (PWS) in order to calculate the total price for the required effort. The BOE must be developed before the pricing can take place so that the pricing team knows the cost elements, which will require pricing. To put it differently, the BOE is an estimate developed to outline a Company’s expected staffing and solutions for the selected Government solicitation. This proposed estimate is combined with detailed explanations and supporting rationale which bolsters the overall conclusion. The BOE needs to be able to show the level of services (proposed labor), the skill mix required, materials, travel, etc., that will be required to deliver what is requested through the solicitation. In order to provide a realistic estimate, technical experts should be utilized in order to appropriately determine the work effort needed. The details in the BOE need to be sufficient for the technical evaluator (government or prime contractor) to understand the rationale used, the source of the underlying data, the detailed calculations involved, and the basis for any complexity factors.

Sometimes, a company is so anxious to receive a government contract that it ignores warning signs in the solicitation and accepts a firm-fixed-price contract when the contract type is not appropriate for the circumstances. Often the warning signs are subtle and consist of vague specifications, but in other cases, the warning signs are written, literally in capital letters. One such contract resulted in the ASBCA issuing a decision on March 30, 2016, on case number 58243. This case upheld a termination for default issued April 23, 2012, against Highland Al Hujaz Co., Ltd. This case illustrates both the warning signs the contractor should have heeded and the consequences.