Georgia Tech Procurement Assistance Center

Renewed focus on contractor business system reviews

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According to a recent U.S. Government Accountability Office (GAO) report, the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency (DCMA) have taken certain steps to improve the contractor business system (CBS) review process and are forecasting that CBS reviews will increase significantly over the next four years. Contractor business systems include a contractor’s accounting, earned value management, estimating, purchasing, material management, and property management systems.

These systems require contractors to maintain internal controls that, as GAO noted, “act as the first line of defense against fraud, waste and abuse of federal funding.” Given their importance, the renewed focus on ensuring CBS reviews are conducted in a timely and consistent manner is not surprising, and contractors should prepare for a new wave of audit activity.

Past Challenges to Completing CBS Reviews

In its report, GAO identified persistent challenges that have prevented DCAA and DCMA from performing consistent and timely CBS reviews. One key factor for DCAA is its focus on eliminating the backlog of incurred cost audits, which determine whether contractor costs are allowable prior to closing out the contract. GAO found that as a result of prioritizing incurred cost audits, Contracting Officers maintained CBS determinations as adequate even though the systems had not been audited in many years. GAO further found that lacking a mechanism to track CBS audits, DCMA and DCAA did not always comply with requirements to report CBS deficiencies or did not report the deficiencies within required timeframes.

Keep reading this article at: https://governmentcontractsnavigator.com/2019/03/21/renewed-focus-on-contractor-business-system-reviews/

Boosting small business demands big ideas

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There are 28 million small businesses in America, and Defense Contract Management Agency’s small business team wants as many of them as possible to join the defense industrial base.

“Our mission is to provide small business support to our defense and government customers by ensuring subcontracting compliance and optimizing subcontracting opportunities,” said Tatia Evelyn-Bellamy, the director of DCMA’s Small Business Office and Small Business Compliance Center. “Our strategy is to actively assist customers in developing aggressive but reasonable subcontracting plans for their contractors and review contractor subcontracting program compliance.”

In line with the agency’s over-arching mission of warfighter support, Evelyn-Bellamy explained her team’s effort “in assisting military partners with pre-award and post-award subcontract management, and working with prime contractors to achieve subcontract success” helps foster business innovation and new technology, supports the warfighter, strengthens and sustains the military and economic industrial base, and promotes private enterprise.

It is a massive undertaking that the office’s name naturally undersells. Small businesses account for 54 percent of all U.S. sales and provide 55 percent of all U.S. jobs. To support this large group of American taxpayers, the agency’s small business team partners with other DCMA departments to create an environment of support.

“We maintain a collaborative relationship with senior leaders, program managers and the Contracts Directorate to ensure customers and contractors develop acquisition strategies to identify and receive quotes, bids, or proposals from small business vendors,” said Rosalyn Wiggin, a small business professional within the SBO. “Our joint effort educates customers on small business regulation requirements and the benefits of small businesses — particularly their responsiveness to requirements and agility to perform in a more cost-effective manner compared to current large business suppliers and service providers.”

The U.S. Small Business Administration’s categorization of “small” depends on the industry. It is then further defined by average number of employees over the past 12 months or average annual receipts over the past three years. Prospective contractors should visit the administration’s website for more information. As a first-glance qualification test, SBA guidelines maintain businesses must meet the following parameters to qualify for small-business government contracts:

  • Is organized for profit;
  • Has a place of business in the United States;
  • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor;
  • Is independently owned and operated; and
  • Is not dominant in its field on a national basis.

DCMA’s collaborative effort begins once business owners determine they qualify for small-business government contracts. Many owners may find it difficult to navigate regulations, especially those new to government contracts. It is a challenging environment that can at times punish inexperience, but Evelyn-Bellamy said her team maintains passion in pursuit of its mission.

“We are committed to expanding the small business industrial base,” Evelyn-Bellamy said.

In support of that commitment, DCMA SBO works with its DoD and industry counterparts to include the Navy’s Office of Small Business Programs, local Procurement Technical Assistance Centers, the National 8(a) Association, the National Defense Industrial Association, veterans’ groups and many more.

In addition to supporting these organizations, the agency’s small business team conducts training sessions, when appropriate, for both contractor and government personnel on existing and emerging small business issues.

“We support many groups whose goals are to educate, inform and train small business personnel and our industry counterparts on current programs, processes and initiatives,” said Eric Claud, an SBO professional. “It really is all about increasing small business opportunities for prime contractors, and particularly subcontractors, across the Department of Defense and the federal government.”

All of these efforts can make a huge difference in the financial health and success of small and socio-economic disadvantaged businesses. According to the SBA, “most government agencies ‘set aside’ a percentage of their acquisitions for small and disadvantaged businesses. In some cases, these set-asides might consist of certain types of tasks on larger contracts. In other cases, entire contracts may be designated for small businesses.”

In other words, there are often government-contract opportunities available to small business owners. Whether owners are qualified and prepared to properly apply is another story. DCMA’s small business team hopes to ensure that answer is always yes.

This article was originally published in the 2017 DCMA INSIGHT magazine. You can read the original here: http://www.dcma.mil/LinkClick.aspx?fileticket=rX-EzAgRqWU%3d&tabid=2273&portalid=31

Shutdown advice for contractors: If a stop-work order comes, stop work

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Congress’s progress on its 12 annual spending bills for fiscal 2019 means “we’re in pretty good shape ” for funding federal agencies, David Berteau, president and CEO of the 400-member Professional Services Council, told his contractor members in a webinar last Wednesday.

Congressional appropriators have reported all spending bills from committee, with a half-dozen approved by full chambers, Berteau noted, lawmakers’ most productive pace in 12 or 13 years. But with only 11 legislative days left before the fiscal year ends Sept. 30, there is a “slim chance” of all 12 getting through conference or a major negotiated omnibus deal, which is why it is “prudent” for agencies and contractors to prepare for the possibility of a lapse in appropriations. Getting all the bills signed by Oct. 1 “is subject to a lot of decisions affected by both votes and politics,” Berteau said.

“The reason we [present preparation guidance for our members] is not to predict a [shutdown]–we hope there is no government shutdown,” added Alan Chvotkin, PSC’s executive vice president and counsel, but because reacting to agency closures “is an arcane area.”

Keep reading this article at: https://www.govexec.com/contracting/2018/08/shutdown-advice-contractors-if-stop-work-order-comes-stop-work/150578/

DoD reassures major contractors it’s not returning to old IR&D practices, but significant questions still remain

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AT&LOn January 4, 2017, the Department of Defense’s top acquisition official issued a memorandum further clarifying the implementation of a November 2016 final rule concerning the reimbursement of major contractors’ Independent Research & Development (“IR&D”) costs.  In a move likely intended to reassure major defense contractors, Undersecretary of Defense for Acquisition, Technology & Logistics, Frank Kendall, stressed that the recent final rule “merely codifies a long standing practice” used by contractors.  Mr. Kendall also emphasized that DoD does not require major contractors to obtain formal or “de facto” approval of IR&D projects before incurring such costs.

But while DoD’s efforts to comfort industry are commendable, some key questions remain, including most prominently: whether and how DoD auditors will utilize the results of pre-IR&D “technical interchange” meetings to question the allowability of IR&D costs.

The memorandum is just the latest in a series of communications from DoD on the allowability of IR&D costs. As previously discussed here, DoD issued a white paper in August 2015 signaling that a significant overhaul of the IR&D regulations may be on the horizon.  The white paper established a goal of requiring that contractors engage with “appropriate technical operational staff” prior to incurring IR&D costs.  Moreover, and perhaps most alarming for contractors, the white paper indicated that the Defense Contract Management Agency (DCMA) and the Defense Contract Auditing Agency (DCAA) would use information shared during the required “technical interchange” meetings to make allowability determinations for IR&D costs.  The views expressed in the white paper harkened back to the Technical Evaluation Group and Tri-Service Negotiation Group approval process of the 1980s – when these groups assessed the quality, reasonableness, and potential military relationship of each IR&D project before the project costs could be considered allowable.  This process was abandoned in the late 1990s in favor of increased autonomy for contractors in choosing IR&D projects.

Keep reading this article at: https://www.insidegovernmentcontracts.com/2017/01/dod-reassures-major-contractors-not-returning-old-ird-practices-significant-questions-still-remain/

For federal IT vendors, a lot to like in House, Senate Defense bills

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From the perspective of federal technology companies, there’s a lot to like in this year’s House and Senate Defense authorization bills. Indeed, a leading industry group’s main complaint is that the acquisition reforms in the legislation only apply to DoD — not the rest of the government.

House Armed Services CommitteeWhile the leaders of both the House and Senate armed services committees say they’re taking an incremental approach to acquisition reform in their respective versions of this year’s Defense authorization bill, the Senate version, released last week, appears to try to achieve more change within a single year.

The measure tackles everything from the role of the military service chiefs in procurement decisions to the acquisition workforce and establishing new “alternative” pathways to buy goods and services and pressing the Defense Department to make more use of commercial technology.

In a briefing with reporters Wednesday, May 27, the IT Alliance for Public Sector (ITAPS), a lobbying group and association for federal IT contractors, said it had no substantive disagreements with any provisions in either of the Defense bills — an extremely rare occurrence for any advocacy group with interests in the huge, annual National Defense Authorization Act (NDAA).

Keep reading this article at: http://www.federalnewsradio.com/394/3865197/For-federal-IT-vendors-a-lot-to-like-in-House-Senate-Defense-bills

Contractors start to feel the shutdown pain

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As the government shutdown drags on, contractors both large and small are raising alarms about ripple effects on their workforces and cash flow that threaten to worsen if the budget stalemate continues.

The Aerospace Industries Association on Thursday called on Congress to accelerate the process toward a solution or risk private-sector furloughs and certification delays that could wreak havoc on schedules for aircraft delivery and space launches.

“A number of our member companies have notified us that if this shutdown continues — which is affecting all of the Defense Department’s functions involved in contracting – they will be forced to furlough tens of thousands of workers,” said AIA President and CEO Marion C. Blakey in a statement. “The most immediate concern is the absence of Defense Contract Management Agency inspectors…..required to audit and approve parts and operations throughout the manufacturing process for military products. The manufacturing process must stop if these inspections and certifications are not performed, choking off the flow of new equipment to our armed forces.”

Keep reading this article at: http://www.govexec.com/contracting/2013/10/contractors-start-feel-shutdown-pain/71356

How to manage a Federal contract during the Government shutdown

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In the wake of the Government’s October 1, 2013 shutdown, clients of the Georgia Tech Procurement Assistance Center (GTPAC) have been asking our counselors a lot of questions about the implications.  Here is a summary of the advice we are giving:

  • Generally, if you are competing for a Federal contract, everything is on hold.  Watch FedBizOpps (www.fbo.gov) where a majority of Federal solicitations are posted to see updates on the status of anything you are bidding on, or have bid on recently.  Don’t expect up-to-the-minute information since so many Federal employees are on furlough, but that’s the best place to check on the status of most Federal procurements.  If you discover that the procurement official assigned to managing the solicitation in which you are interested is not on furlough, an inquiry by email is permissible.  Be patient in waiting for a reply — remember that literally hundreds of thousands of Federal employees are on furlough status at the moment.
  • Some procurements, related to essential Government functions, are proceeding with minimal disruption, but expect delays.
  • If you have an active Federal contract, it is imperative that you comply with all contractual terms and conditions, and that accurate records of shutdown-related impacts be maintained.  Knowing the terms and conditions of your contract inside-out will pay-off right now.  Be sure to read the rest of this article for tips on managing an active Federal contract.

Specific contractual actions to protect your company’s interest will vary by contract type and contract terms.  All have to do with the specific provisions contained in your contract.   Some things to consider include:

Cost-Type/Fixed Price-Type (incrementally funded) Contracts

  • Ensure compliance with the notification requirements of the “Limitation of Cost” or “Limitation of Funds” provision of the contract (cost-type contracts).
  • Develop plans to minimize the impact to the customer (the end-user within the Government) and your firm (i.e., curtail non-essential program elements to stretch program funding) and request a Stop Work be issued by the Government’s Procurement Contracting Officer (PCO or just CO) for the non-essential elements.
  • If a Stop Work is not issued, notify the PCO/CO of potential delays under “Government Delay” and/or “Excusable Delay” provisions. (fixed price-type contracts).
  • Provide direction to your supplier base consistent with the PCO/CO’s direction.
  • Ensure Government payments reflect any adjustments due you under “Prompt Payment” provisions.
  • Segregate costs as documentation for a potential delay and disruption under the Request for Equitable Adjustment (REA) provision of your contact.

Fixed-Price Type Contracts (fully funded)

  • The Government shutdown does not have an immediate impact on contract performance but, over time, the unavailability of Government inspectors or support could lead to delays and disruptions and should be documented for future Request for Equitable Adjustment (REA) consideration.
  • Ensure Government payments reflect any adjustments due you under “Prompt Payment” provisions.

Other Items to Consider

  • Proposals and unexercised options could expire during an extended shutdown period.  If it is in the best interest of your firm, a non-solicited proposal extension/option exercise date extension could be provided to the Government.
  • The Government may not be able to provide inspectors (e.g., Defense Contract Management Agency) under a shutdown and delay, so disruption impacts should be captured and documented for a future Request for Equitable Adjustment (REA).
  • The Anti-Deficiency Act (ADA) does not allow the government to spend money that is not obligated, therefore and firms should be leery of      non-warranted individuals requesting you to work and get paid later; e.g., contracting officer representatives (CORs) or other Government officials.  Only COs and PCOs can make binding commitments.
  • Be mindful of mission creep, where the Government requests you to perform additional contract tasks due to Government personnel unavailability.
  • The Government shutdown potentially impacts to your rates and long-range plans based on prolonged funding gaps and/or stop work orders, so alert your accounting staff to document all impacts of the shutdown.

As always, feel free to contact a GTPAC procurement counselor if you have questions or need guidance.  All contact information is posted at: http://gtpac.org/team-directory.

 

New defense rules might cost contractors money

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The final Defense Federal Acquisition Regulation Supplement (DFARS), released in February, is an improvement over its predecessor, but its withholding clause could cause problems and payment delays for many Defense Department contractors, experts say.

An April 25 cross-industry panel of contracting experts agreed that the new DFARS is the most comprehensive change in federal contracting in several years.

But they centered their attention on assessing the new withholding clause, which calls for withholding a percentage of the contract payment if the Defense Contracting Management Agency finds “significant deficiencies” in any of six business systems cited in the new rule.

Timothy Callahan, executive director for contracts at DCMA, said the old rule had a variety of regulations, no consistent language in determining whether a contractor’s work was adequate or inadequate, and what and how corrective actions were to be taken.

“Under the way we were operating if a contractor had a deficiency with a business system, they put forward an adequate corrective action plan; that submittal of an adequate action plan oftentimes was sufficient to change the status from a disapproved system to an approved system,” Callahan said.

“And there really wasn’t the follow-through on either the contractor’s part or our oversight to ensure that that corrective action plan was put into place,” he added.

The new DFARS business system clause normally does not apply to small businesses, competitive fixed price contracts or contracts less than $7.5 million, he said, adding that the agency will issue a withhold assessment on contracts valued at more than $50 million.

Callahan said DCMA now will use a four-phase program to determine if any of six contract business systems are judged to contain “significant deficiencies.”

“If it’s one business system, the withhold [amount] is 5 percent. If it’s two or more business systems that are being disapproved, the maximum is 10 percent,” he said.

“The withholds are against the financing arrangements of the contract,” Callahan explained, including progress payments, performance-based payments and interim cost vouchers.

The contractor then has 45 days to turn in its corrective action plan.

“If it’s an adequate corrective action plan the withhold will be reduced by 2 percent,” Callahan said. “We’re trying to minimize the hurt but still keep the pressure on to get this corrective action implemented.”

When the contractor notifies the government of the implementation, the government has 90 days to validate that corrective action has indeed occurred and that the deficiencies have been corrected.

“If we don’t get out there within 90 days, it’s another automatic reduction in the withhold [penalty] of 50 percent,” he said.

Participants at the Compusearch-sponsored panel “Contracting in a Time of Change” agreed there was a definite need for a new DFARs rule.

But Robert Burton, partner at Venable law firm and former deputy administrator in the Office of Federal Procurement Policy, called the business system clause draconian and hard to implement.

Alan Chvotkin, executive vice president and counsel at the Professional Services Council, said there is a lot of mythology surrounding the rule.

However, he praised DFARS for providing “contractor engagement and response at every opportunity. So it’s really moved to a compliance rule rather than a withholding rule.”

Chvotkin said the attributes in each of the six business systems are more clearly defined now than they were early on in the drafting process “But there’s still a lot of ambiguity and a lot of room for interpretation,” he said.

Addressing the ambiguity and need for interpretation, Chvotkin offered several steps contractors need to take even before winning a contract affected by the rule.

He said contractors should always document their own business systems, be aware proactively of the contract clauses and the risks inherent in DFARS.

Robin Schulze, director of the Government Contractor Advisory Services at accountants Baker Tilly Virchow Krause LLP, said she believed the strength of the new DFARS was its peer review requirement.

But she said, “I believe that when you get the initial determination [of a deficiency] if you were able, in your response to that, provide an action plan you could start at 2 percent [withhold] instead of the 5 percent. And the same thing should be true if you voluntarily disclose a deficiency that you’ve identified and have already started working of it.”

Defending the clause and the remediation process, Callahan suggested that if a contractor knows there is a problem and takes corrective action right away, “we can start out with a withhold of 2 percent, it doesn’t have to be 5 percent,” he added.

“We would like this to be a collaborative operation,’ Callahan said, “where we’re communicating as we go along.”

About the Author: David Hubler is senior editor of Washington Technology.  This article was published on Apr. 25, 2012 at http://washingtontechnology.com/articles/2012/04/25/panel-on-dfars.aspx?s=wtdaily_260412.

New Congress could put the brakes on insourcing

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The 112th Congress is unlikely to let the Obama administration move full-speed ahead on its initiative to bring contractor jobs back in-house, a consultant and a Republican Senate staff member said on Thursday.

Jonathan Etherton, president and owner of the consultancy Etherton and Associates Inc. and a former Senate Armed Services Committee staffer, told an audience of contractors at a Coalition for Government Procurement breakfast he has heard at least three congressional panels plan to look at whether insourcing is being implemented strategically and whether agencies are focusing on critical positions.

Bill Wright, Republican staff director for the Senate Homeland Security and Governmental Affairs Ad Hoc Subcommittee on Contracting Oversight, noted insourcing is on the radar of ranking member Sen. Scott Brown, R-Mass. Brown is concerned the initiative is moving forward too quickly and without enough consideration of its effect on small businesses, Wright said during the breakfast discussion.

More generally, Brown is looking for ways to improve efficiency during times of mounting national debt, Wright said. The senator is developing an acquisition savings plan that could include expanding strategic sourcing, an approach in which agencies analyze purchasing trends and buy common commodities and services in bulk; rewarding high-performing acquisition teams; and promoting a more specialized acquisition workforce by requiring officials to obtain certifications in certain areas of expertise.

New Congress could put the brakes on insourcing  Much of the subcommittee’s oversight work to date has been bipartisan, Wright added, and Brown is working with the administration on the efficiency initiatives.

Etherton noted, however, that Congress’ overall relationship with the executive branch is likely to grow more adversarial in 2011 with Republicans in control of the House and lawmakers aggressively scheduling oversight hearings.

In addition to insourcing, Etherton said, the next Congress is likely to examine implementation of the 2009 Weapons System Acquisition Reform Act; the relationship between the Defense Contract Audit Agency and the Defense Contract Management Agency; the definition of inherently governmental work; how to best ensure adequate contractor controls against waste, fraud and abuse; and how Defense Department savings initiatives will affect the industrial base.

Wright predicted lawmakers also would focus on transparency surrounding contractor profit incentives and subcontractor performance; tracking contract-related earmarks; and enhancing competition and limiting risk through fixed-price arrangements.

— by Amelia Gruber –  Government Executive – December 16, 2010

Defense agency raises bar for reviewing contractor cost proposals

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The Defense Contract Audit Agency has agreed to dramatically reduce its oversight of Pentagon procurements, according to an internal memorandum.

Effective immediately, DCAA will accept contracting officers’ requests for audit assistance only for fixed-price proposals of more than $10 million and cost-type proposals worth more than $100 million, according to a memo the Project on Government Oversight, a federal watchdog group, obtained last week. Assistance entails a review of the contractor’s cost proposals to the government. The order does not apply to requests by another DCAA office and includes a waiver for “exceptional circumstances.”

“One of the priorities undertaken by DCAA this year was to better align workload requirements with available resources,” wrote Kenneth J. Saccoccia, DCAA’s assistant director of policy and plans, in the Oct. 18 memo. “Coordination within DoD resulted in agreement that DCAA should target its resources on high-risk proposals to best serve our stakeholders.”

But, critics suggested the plan is short-sighted and could expose the government to massive overcharges by prime contractors.

“POGO has long feared contractors and their government allies would block DCAA from exposing contractor rip-offs,” said Nick Schwellenbach, POGO’s director of investigations. “Why are billions of dollars being put at risk when [Defense] Secretary [Robert] Gates is demanding cost savings?”

In a statement, a Defense Department spokeswoman said the change will allow DCAA to focus on the highest-risk areas, and “actually increase savings to the department and warfighter.”

In the past, there was no dollar threshold for reviews on fixed-price contract proposals, but requests for audit assistance generally were limited to proposals in excess of $700,000, according to POGO. The previous threshold for DCAA to review a cost-type proposal was $10 million, although the agency made exceptions if the prime contractor had systemic problems estimating costs.

POGO reviewed federal contracting data and found $92 billion in Defense contracts fell between the previous thresholds and the new ones.

Audits below the new threshold will now be referred to the Defense Contract Management Agency for field pricing assistance, Saccoccia wrote.

Schwellenbach argued DCMA does not specialize in reviewing and verifying cost and pricing data. The congressionally chartered Commission on Wartime Contracting has criticized DCMA for a lack of thoroughness.

The redistribution of audit assistance work came as no surprise to observers who have tracked DCAA’s response to a stinging 2008 Government Accountability Office report. The watchdog found DCAA auditors often failed to comply with generally accepted government auditing standards, documented their audit opinions improperly and submitted sloppy working papers.

But, some auditors suggested DCAA managers overreacted to the report, and they now have embraced the time-consuming GAGAS process for all audits and reviews of cost data in contractor proposals. The result has been that reports take longer and require a field office manager’s approval. Often contracts are issued before the DCAA reviews are complete.

In fiscal 2008, the average time to complete a contractor pricing review was 28 days, compared with 72 days in fiscal 2010, agency officials said. The number of DCAA reports produced annually also has plunged from about 30,000 in fiscal 2008 to 21,000 in fiscal 2009.

“Some of our audits take longer because we are doing a more comprehensive job,” DCAA Director Patrick Fitzgerald told Government Executive in July. “If there are other factors that are causing us to take longer, we need to do a deep dive on those and try to figure out how mitigate or to alleviate them.”

The agency has hired 500 new auditors since the GAO report and will add 1,000 more by fiscal 2015, a 37 percent staffing increase. DCAA also is planning to shed several low-priority services and place more emphasis on high-risk contracts.

— by Robert Brodsky – GovExec.com – November 1, 2010

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