1.
Introductory Comments
a. Course faculty and course objectives
b. Contractor Alternative Risk Strategies: i) Maximizing Cost Recovery, ii) Avoiding All Compliance Issues, iii) Achieving Target Rates
2. Government Contract Regulations: Listing of relevant FAR, CAS, DFARS
a. 52.216-7: Allowable Cost and Payment Clause including (d) adequate ICP, rate agreement letter, actions after rate agreement letter, (e) billing rates, (f) quick close-out rates and (h) final payment
b. 52.215-2: Audit and Records—Negotiations
c. 52.232-7: Payments under Time and Materials (T&M) Contracts
d. 52.242-4: Certification of Final Indirect Cost Rates
e. 52.242-3: Penalties for Unallowable Costs
f. 31.201-205: Contract Cost Principles and Procedures
g. 42.704: Billing Rates
h. 42.705: Final Indirect cost rates, Contracting Officer Determination or Auditor Determination procedures
i. 4.703-705: Contractor records retention
j. 33.206: Statute of Limitations on claims (Initiation of a claim): 33.206
k. 52-216-7(d)(5) and 42.202(d)(2): .Prime Contractor responsibility for subcontracts
l. Part 30: Cost Accounting Standards Administration
m. DFARS 252.242-7006: Accounting System Administration (business system)
3. Government Contract Administration and Contract Oversight/Audit
a. Cognizant Federal Agency
b. Defense Contract Management Agency (DCMA); responsibilities and relevant agency policies
c. Defense Contract Audit Agency (DCAA); responsibilities and relevant agency policies including the ICP adequacy checklist (2016) the ICP backlog and strategies to reduce the backlog including DCAA’s low risk sampling plan
d. Civilian Agencies including their use of DCAA or IPAs (Independent Public Accounting firms)
e. GSA Schedules (potentially audited, but not by DCAA)
4. Contractor actions after ICP submission and before a government audit
a. Updating provisional billing rates and re-invoicing
b. Rescinding a previously submitted ICP
1. Audit results & resolutions (prior year) and the penalty clause applicable to rescinded ICPs
2. Correcting errors and omissions---DCAA Adequacy rejection notice
3. Correcting errors and omissions---contractor self-initiated
4. Re-certification
5. Alternative rate settlement procedures
a. Quick close-out final rates
b. Low risk sampling or final rate agreement settlement offer (decremented or
un-decremented rates) implicating “no audit”
c. Far 33.206 Statute of Limitations: Does the six year statute of limitations apply to ICPs; if yes, when does the clock start?
6. The Audit
a. Notification of audit or review: government agency or third party?
b. Entrance conference, audit coordination ground-rules, tracking data requests, access to employees, status of subcontracts’ audits.
c. Audit scope, “auditable” contract types, direct contract costs, indirect costs/rates, and audit reliance on systems/prior audits.
d. Statistical sampling and DCAA Variable Statistical Sampling Policy and EZQuant
e. Anticipating audit inquiries/challenges
1. Prior audit transaction testing and results
2. Comparative analysis of accounts (52-216-7(d)(iv)(a)) including significant rate variance (provisional billing rates vs. certified ICP rates)
3. Changes: cost accounting practices, organizational, types of contracts, product lines, new commercial business lines.
4. Interim results/auditor communications
7. Typical audit issues (DCAA audit examples)
a. Determining allowability (FAR 31.201-2) including (d) adequate records including proof of payment as well as directly associated unallowable costs
b. Reasonableness (31.201-3) including brief discussion of two KBR CoFC cases
c. Allocability (31.201-4) including out-of-period costs and potential for CAS non-compliance
d. Direct costs FAR 31.202 and 31.201-2(d)) including T&M issues (52.232-7)
e. Compensation (31.205-6) including reasonableness, the statutory cap, bonuses, severance, back-pay and deferred compensation
f. Public relations/advertising, direct selling, marketing, business development (31.205-1 & -38)
g. Employee morale and welfare (31.205-13) vs. Entertainment (31.205-14)
h. Organizational costs (31.205-27)
i. Professional and consultant costs (31.205-33) including lobbying (31.205-22)
j. Trade, business, technical and professional activity costs (31.205-43)
k. Travel costs (31.205-46)
l. Legal costs (31.205-47)
8. The process for issue resolution
a. Responding to DCAA draft audit results
1. Compressed response times
2. Concurring to rates, but not in principle & projecting old year issues into all remaining “open” years
3. Engaging on all fronts or key points in reserve holding in reserve
4. Interjecting contract disputes’ decisions (case law)
5. Probability of issue resolution with DCAA: the unintentional impact of government auditing standards/auditor independence
6. Final rate agreement letters: final or not final including contract disputes’ decisions impacting “finality” and auditors re-opening prior year audits
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- Direct costs and the lack of a final direct cost agreement letter
- Responding to Administrative Contracting Officer rate settlement offers, letters or requests for contractor response to DCAA audit reports
- Overall strategy: issue resolution or agree to disagree
- Direct costs (not necessarily resolved along with final rates)---subcontract issue resolution “passed” to the prime and prime ACO.
- Agreement without agreement in principle
- Contract Disputes Act
- Penalties (52.242-3) and actions after final rate agreement including revised invoices (60 days)
- Contract close-out
- Timing for final vouchers (120 days after the rate agreement letter)
- Contents of a final voucher including expectations that amounts match the cumulative schedule in the ICP
- Requirements for subcontract closeout including the regulatory requirement for prime contractors to establish final costs and rates for their cost-type subcontracts
- Contract close-out and future Cost Accounting Standards (CAS) non-compliances or why a CAS covered contract is never fully closed
