Hot Topics in DCAA

Recently, DCAA reminded its auditors that access to contractor employees is a “routine and established audit procedure” which is necessary to comply with GAGAS (Generally Accepted Auditing Standards).  While the initial focus of the guidance to auditors relates to the well-known “floor check” procedure, it also opines that DCAA’s position is that contractors are required to allow access to any employee during any audit who might be a SME (Subject Matter Expert) on contractor processes and procedures, or data provided to the auditor.  DCAA is now focused on this matter because of past criticism by agencies having oversight of its performance.  The Agency’s objective is to ensure auditors have met the GAGAS requirement to “…obtain sufficient evidence to provide a reasonable basis for the conclusion … Continue reading

Adding Value to the Company: Moving to Dismiss Claims Under the Contract Disputes Act for Statute of Limitation Violations

To say that there is a crisis surrounding the closing of government contracts, especially large cost-type contracts held by large government contractors, would certainly not be an understatement. [i]  Closing a contract essentially requires verification that the goods or services have been provided and that final payment has been made to the contractor. Audits are the tools the government uses to support contract closeouts.  However, the government is seemingly taking forever to perform various audits of government contracts.  To illustrate, the Defense Contract Audit Agency, the audit arm of the Department of Defense, had a backlog of 25,000 incurred cost audits at the end of Fiscal Year 2011, some dating as far back as 1996. GAO, Defense Contracting:  DOD Initiative to Address Audit Backlog Shows … Continue reading

FAR 52.216-7, Allowable Cost and Payment (Part 2 of 2)

Applicability: This FAR clause is incorporated in cost reimbursement contracts and Time-and-Materials (T&M) contracts for other than commercial items. For T&M contracts, the clause only applies to the part of the contract that reimburses materials on the basis of actual cost. The clause also includes four alternate versions, whose inclusion was discussed in Part 1 of this two-part series.   Key Requirements: The clause addresses two key areas, (1) interim reimbursement of costs, and (2) determination of final indirect rates. Part 1 of the two part series addressed the interim reimbursement of costs. This Part 2 of our series addresses the determination of final indirect rates. In regards to the determination of final indirect rates, the clause requires the contractor to submit an adequate final … Continue reading

FAR 52.216-7, Allowable Cost and Payment (Part 1 of 2)

Applicability: This FAR clause is incorporated in cost reimbursement contracts and Time-and-Materials (T&M) contracts for other than commercial items.  For T&M contracts, the clause only applies to the part of the contract that reimburses materials on the basis of actual cost.  The clause also includes four alternate versions, which are included in contracts as follows (the alternate versions generally provide additional wording regarding the frequency of payments): Alternate I is included in Construction Contracts that also include the clause at FAR 52.237-27, Prompt Payment for Construction Contracts; Alternate II is included if the contract is with an educational institution; Alternate III is included if the contract is with a State or local government; and Alternate IV is included if the contract is with (a) a … Continue reading

GAO Recommends Little Relief to Incurred Cost Submission Backlog

Guest Authors: Capital Edge Consulting ( The recent GAO report on the backlog of audits of Incurred Cost Proposals is unfocused.  The conclusion highlights the fundamental issue at hand in the statement, “DOD has fallen far behind in closing out its contracts, in part due to the large backlog of incurred cost audits that must be performed by DCAA…” The GAO’s “Recommendations for Executive Action” include recommending DCAA, “…assess whether its incurred cost backlog initiative is achieving the objectives of reducing the incurred cost audit backlog…”  With this suggestion, GAO is recommending DCAA engage in the same metric type exercise that landed it in hot water in 2009 (GAO Report 09-468, September 2009).  Clearly, the GAO’s recommendations lack substance on how to increase the rate of … Continue reading

FY 2013, NDAA Authorizes Mentor Protege Program for All Small Businesses Among Significant Small Business Contracting Changes

Guest Authors: Richard B. Oliver, John W. Heath, & J. Matthew Carter, McKenna Long & Aldridge.  Originally posted at   The Fiscal Year 2013 National Defense Authorization Act (“NDAA”), signed by President Obama on January 2, 2013, makes numerous significant changes in the federal government’s small business contracting programs. Most importantly, the NDAA authorizes the Small Business Administration (“SBA”) to establish a mentor-protégé program for all small business concerns. Among other changes, the NDAA revises the rules for limits on subcontracting for small business set-asides, eliminates the dollar limitations for set-aside contracts for women-owned small businesses, and creates a small business Ombudsman to serve at DCAA. By authorizing the use of the mentor-protégé program for all small business concerns, NDAA section 1641 effectively alters the … Continue reading

FAR 52.230-6, Administration of Cost Accounting Standards

NOTE: This is Part II of a two-part series on this clause.   Applicability: This FAR contract clause is incorporated into all contracts subject to the Cost Accounting Standards.  The clause focuses on administering the requirements imposed under the Cost Accounting Standards.   This clause provides a process for the contractor and CFAO to administer (1) changes in cost accounting practice (required, unilateral, and desirable changes), and (2) noncompliances.  In this Part 2 of the two part series, we will address noncompliances.  Note that a Government final determination in administering all CAS issues is made by the Cognizant Federal Agency Official (CFAO).  The Procuring Contracting Officer (PCO) must delegate CAS administration to the CFAO, i.e., the PCO is not authorized under the FAR to make CAS determinations. … Continue reading

DoD IG Critical of DCMA Proposal Audits

By Darrell Oyer, Darrell J. Oyer & Co.: In 2010 DOD issued guidance to contracting officers raising the contract value for requesting a proposal audit from $650,000 to $10 million for fixed-price contracts and from $10 million to $100 million for cost-type proposals. DOD transferred low-dollar proposal audits from the Defense Contract Audit Agency (DCAA) to the Defense Contract Management Agency (DCMA).  The change came in the wake of congressional criticism over the quality of DCAA’s audits. DCAA said this decision would allow it to redirect 132,133 audit hours to higher-dollar proposals [Editorial Note:  Sure]. A DOD Inspector General (IG) report has now concluded that this action could cost taxpayers as much as $249.1 million per year. According to the IG, DCMA’s Pricing and Negotiation … Continue reading

DCAA Touts Increased Quality of Audits

By Darrell Oyer, Darrell J. Oyer & Company: A canned DCAA presentation contends that the quality of audits has improved as evidence by the fact that in FY2003 DCAA examined $265b and questioned only $8b (3%); but in FY2011 DCAA examined only $128b but questioned $12b (9%).  So they are doing less but doing a better job! Don’t you believe it!  As most people will tell you, DCAA is questioning more costs, not because of better work, but because of a more outrageous questioning of costs.  For example, I have had one situation where DCAA would take credit for over $4m in corporate allocations but never did an audit—they merely rejected the entire allocation based on the wording in the company’s annual report.  In another … Continue reading