Redstone Government Consulting Blog | Small Business Compliance (7)

Although many of us think of contract disputes as those involving a prime contractor and a U.S. Government agency, subcontracts can also trigger differences of subcontract interpretation between the prime and subcontractor. In Civil Action No. 1:16-cv-215, the United States District Court for the Eastern District of Virginia decided a diversity breach of contract case between government contractors (the contractor and subcontractor names are a matter of public record, thus disclosure). Fluor (the subcontractor) contended that they did not agree to a 2.3% cap to their G&A on a proposal effort with the United States Air Force. Their proposal, as a subcontract to their prime contractor, PAE, was ultimately selected for the award, at which time, a subcontract agreement was executed and the two parties began their respective performance on the contract. The specific language of that subcontract agreement is the heart of this case (differentiated from a dispute over the regulatory language contained in a subcontract flow-down).

We often hear the following statement and question: “My proposal (the government solicitation) calls for a compliant accounting system (SF 1408) and I’ve never been audited.  What do I do?”.

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.

Understanding the requirements and/or selection criteria before preparing a fully responsive bid to a government solicitation cannot be understated. In a recent decision (B-413559.2; B-413559.8) by the Government Accountability Office (GAO), two separate government contractors’ protests questioned the government’s evaluation scheme. Specifically, the protesters argued that certain terms contained in the request for proposal (RFP) were unduly restrictive. The protestors were ultimately challenging their respective elimination from competition based on the fact that they did not score high enough to be included in the top 60 technically rated offerors.

Adhering to the requirements of a government solicitation is paramount when submitting a proposal. In a recent decision (B-413104.5; B-413104.6) by the Government Accountability Office (GAO), two separate government contractors’ protests were denied for failure to meet the explicit requirements of a solicitation for the Department of Health and Human Services, National Institutes of Health (NIH). The protestors were ultimately challenging their respective elimination from competition based on the fact that the non-responsibility determination should have been referred to the Small Business Administration (SBA) under SBA’s certificate of competency (COC) procedures.

“A sound internal control environment, accounting framework, and organizational structure” is criteria number one in DFARS 252.242-7006 Accounting Systems. In fact, all six of the business systems identified in DFARS 252.242-7005 Contractor Business Systems, or commonly known as the “DFARS Business Systems Rule”, references adequate internal controls and the reliability of data. Even more far-reaching than DFARS is that FAR, adhered to by most, if not all US Federal Government agencies, requires adequate contractor internal controls over financial data relied upon for acquisitions. For the purposes of this blog, we shall focus primarily on the DFARS Business Systems Rule as it applies to defense contractors because of the activities of DCAA.

Outsourcing certain administration functions within an organization has become a trending practice among government contractors. In fact, we have seen a noticeable uptick in outsourced accounting, human resources and contracts administration functions over the past year.

Whether a company chooses to outsource a certain administrative function to fill a temporary void or a permanent one, looking to subcontractors for help makes sense for a number of reasons.

Our partnership with Unanet has benefited a lot of our clients in a multitude of different ways. Not only are our consultants trained and certified to implement the software for our clients, we can also provide a variety of other types of Unanet software support to add value to the software system, accounting environment, and project management. Below are a few examples.

In today’s budgets constrained environment U.S. Government contracting officers are seeking every opportunity to obtain discounted or reduced prices for services and materials, and as a tax payer that should make us all happy. However, for those of us who work in the government contracting industry the sight of LPTA solicitations, and enhanced scrutiny of proposals does make work life more challenging. One of the areas that we see challenged by contracting officers either during the proposal process or after award is the application of G&A on direct travel associated with the contract. This might be a solicitation provision, a Government expectation for contractor concessions during negotiations or a Government interpretation after contract award.

A question we are frequently asked is “Do small contractors really need written policies and procedures in place to pass....”   This is finished with many types of audit - pre-award accounting system, post award accounting system, or even purchasing system?