Redstone Government Consulting Blog | Small Business Compliance (9)

As required by Section 702 of the 2014 Bipartisan Budget Act (BBA) signed by President Obama on December 26, 2013, the June 24, 2014 Federal Register includes an interim rule setting the FAR 31.205-6(p) executive compensation statutory cap at $487K (coincidentally a 49% reduction from the most recent statutory cap of $952,308).   The June 2014 rule notes that it also implements a possible “narrowly targeted” exception to this cost limit for scientists, engineers or other specialists upon an agency determination that such exceptions are needed to ensure that the executive agency has continued access to needed skills and capabilities.  The interim rule also includes a comment period which is for 60 days after the Federal Register publication date (June 24 to August 23, 2014).

On April 21, 2014, the DAR editor submitted a proposed new DFARS rule (DFARS Case 2012-042) for Business Systems Compliance to OMB’s Office of Information and Regulatory Affairs (OIRA).  Generally, this is the last step prior to the publication of the new rules.  The full body of the proposed rule has not been published; however, OIRA has published the following abstract on May 23, 2014 as part of its semiannual compilation of all pending federal regulations:

Robert Eldridge and Michael Steen, Director and Senior Director of Redstone Government Consulting, have been selected to speak at the prestigious National Contract Management Association’s World Congress (NCMAWC). This annual training event for contract management, procurement and acquisition professionals is the largest training event of its kind and will be held at the Gaylord National Hotel and Convention Center in Washington D.C., from July 27-30.

The Department of Energy (DOE) has released its proposed amendments to the Department of Energy Acquisition Regulations (DEAR) which would subject certain DOE contracts to business systems criteria and penalties for failure to maintain adequate internal controls governing those systems.  The proposed rule, published on April 1 2014, makes official a DOE FY 2013 promise of implementing formal regulations which would mirror systems requirements already in place for DOD contracts, those systems of which are defined in DFARS 252.242-7005.

Two recent decisions by the General Accountability Office (GAO) and the ASBCA make it clear that the contractor will be held responsible for incorrect assumptions when they fail to follow up on known inconsistencies or missing information with the government, even when the government is responsible for providing the information.

Government contractors having undergone DCAA incurred cost proposal audits during this past year have learned several important trends and lessons, some of which will likely continue into 2014, and produce added administrative hardships for most contractors. Some initiatives undertaken by DCAA in conjunction with the DCMA may mitigate the level and duration of audit effort and hasten contract close-outs for some contractors.  For example, more contractors will most likely be subject to low-risk determination criteria and expand the number of companies who could escape those audits.  

President Obama will purportedly send to Congress proposed legislation this week which will cap reimbursement of all government contractor employee annual salaries at $400,000, the President’s annual (base) salary.  The proposed legislation is an expansion of the FY 2013 National Defense Authorization Act (NDAA) approved in early CY 2013, applicable only to Department of Defense Contracts, which would ostensibly apply to all government contracts awarded by civilian government agencies, and elevate the cap from the previously debated ceiling of $230,700 (Vice-President’s salary) to the $400,000 amount. 

In a recent DCAA audit policy, DCAA makes note of the 2013 NDAA (National Defense Authorization Act) which requires DCAA to track requests and contractor responses for internal audits and to ensure that DCAA does not use contractor internal audit reports for any purpose other than evaluating and testing the efficacy of contractor internal controls and the reliability of associated contractor business systems.  The reason the NDAA mentions this “limited use” is to diffuse contractor concerns and allegations that DCAA will misuse access to internal audits for so called fishing expeditions.

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. 

Contractor Agrees to Reimburse Employees for Back Wages after Cited SCA Violation

An investigation conducted by the U.S. Department of Labor’s (DOL) Wage and Hour Division for compliance with the McNamara-O’Hara Service Contract Act (SCA) and the Contract Work Hours and Safety Standards Act (CWHSSA) revealed that CH, Inc. violated the provisions of these two statutes by underpaying 35 employees $268,899 in fringe benefits and overtime which, under the statutes, those employees were entitled to receive.