Tuesday, December 31, 2019

Changes Planned for the New Year

Every day for the past ten plus years, we have posted content to this Blog. That makes 2,602 posts on news and information related to Government contracting. Beginning next year however, we will be reducing our publication frequency and narrowing our coverage to topics more closely aligned to contract administration and contract audit. We will no longer cover such things as Justice Department announcements of Fraud allegations, convictions, and recoveries, unless, of course, there are elements to those cases involving FAR (Federal Acquisition Regulations) cost principles. We will no longer provide updates of the NDAAs (National Defense Authorization Acts). There is a lot of NDAA coverage out on the internet already. Also, we will forgo coverage of bid protests, size appeals, and pending legislation (most of which will never become law anyway).

Our goal remains to help Government contractors to grow their Government business, increase profits and comply with the myriad rules and regulations inherent in the Government marketplace. While our blog postings will be less frequent, they will not become infrequent. Stay with us.


Monday, December 30, 2019

Costs Incurred During a Strike Period

FAR (Federal Acquisition Regulations) does not provide specific guidance with respect to the allowability of costs during strike periods.

FAR 22.101-1(b) requires that Governmental Agencies (e.g. DCMA and DCAA) remain impartial concerning any dispute between labor and contractor management and not undertake the conciliation, mediation, or arbitration of a labor dispute. Later provisions in the same FAR section, contracting officers are instructed, in the event that labor disputes give rise to work stoppage, to impress upon contractors that they shall be held accountable for reasonably avoidable delays. Further, all costs incurred during strikes will be carefully examined to ensure recognition of only those costs necessary for performing the contract in accordance with the Government's "essential interest".

Despite its stated neutrality in resolving labor disputes, the Government will be anything but neutral when in comes to paying for strike related costs. Costs directly attributable to the strike, which would not have been incurred otherwise, such as extra security guards, special legal expense, arbitration costs, etc. will all come under close scrutiny and may not be fully reimbursable (even as an indirect expense). Costs which are abnormally higher during the strike period, such as recruitment, training of new employees, etc is another category that will get a lot of attention by contract auditors. Remember, contractors have an affirmative duty to mitigate all strike-related costs.

Costs of a continuing nature will be evaluated based on a number of factors including reasonableness, the extent to which subsequent production makeup operations were undertaken to maintain production schedule, the actions taken to minimize costs during the period and any other factors that have a bearing on the expeditious settlement of the labor dispute.

Sometimes the Government will insist that a contractor accumulate strike related costs and allocate them over the period of the resulting collective bargaining agreement. For example, if the collective bargaining agreement is three years, strike related costs would be accumulated and allocated over production for the next three years.

Friday, December 27, 2019

New Professional Practice Guide (PPG) for Performing Incurred Cost Audits

Section 809 of the 2016 NDAA (National Defense Authorization Act) established the Section 809 Panel to research and recommend improvements to the acquisition process. Section 803 of the 2018 NDAA required the Defense Department to adopt commercially accepted standards of risk and materiality in the performance of incurred cost audits. The Section 809 Panel, with the help of DCAA (Defense Contract Audit Agency) and others, drafted a Professional Practice Guide (PPG) to develop a risk assessment framework intended to 'manage' DoD's risk and materiality approaches to incurred cost audits.

DCAA has now uploaded part of the the PPG to its public website. The Agency included only Chapters 1 and 2 plus Appendix A. It did not include Chapter 3 which deals with internal controls. The PPG has been publicly available for many months but has been buried in the Section 809's 600-page volume 3 final report. DCAA intends to adopt the new risk-based sampling framework for sampling incurred cost proposals and to adopt the materiality standards for performing the incurred costs audits found in the PPG. The first materiality criteria involves the selection of contractors to audit. Once the selection has been made, the second materiality criteria involves what cost elements withing the incurred cost proposal should be audited.

The Professional Practice Guide can be found under the Guidance tab at dcaa.mil. Or, go directly there by clicking here.

Thursday, December 26, 2019

Contractor Charged for Selling Chinese-Made Body Armor to Federal Agencies

Arthur Morgan got himself a GSA (General Services Administration) contract to supply ballistic vests, helmets, riot gear, and other items to the military and to law enforcement agencies. All GSA contracts are subject to the Trade Agreements Act which requires that all products listed on GSA contracts must be manufactured domestically or in a designated country. China is one of many countries not on the "designated country" list.

Various agencies placed orders with Mr. Morgan, nine orders in fact totaling $640 thousand. The Navy was one of those agencies that bought helmets from Mr. Morgan. The problem however was that Mr. Morgan was not manufacturing the helmets nor was he purchasing them from domestic suppliers or from suppliers in a designated country. He was purchasing them from China.

In a series of email exchanges with the Navy over meeting agreed upon delivery schedules, Mr. Morgan falsely advised the Navy that he had a factory in southern Virginia, that the helmets for the order were in production there and the the delays were due to a back-order of materials need for helmet production. However, on the same day that the Navy sent Morgan a partial payment of $127 thousand, Morgan made a payment to a Chinese company that manufactures the exact same helmet as Morgan ultimately delivered to the Navy in the amount of $68 thousand. Now that's a nice profit - based on just the partial payment amount, Morgan earned nearly 100 percent profit. We wonder what the profit percentage amounted to after the Navy made the full payment.

The scheme finally unraveled but the Justice Department is not saying how. Mr. Morgan has been criminally charged and is currently under house arrest (perhaps a flight risk?). Criminal charges do not mean he is guilty. A trial or plea agreement will determine his guilt or innocence at a later date.

The Justice Department press release on this matter can be read or downloaded here.

Tuesday, December 24, 2019

Senator Rand Paul Releases Fall 2019 Edition of "The Waste Report"

Late last month, Senator Rand Paul, who is also the chairman of the Federal Spending Oversight and Emergency Management Subcommittee for the Homeland Security and Governmental Affairs Committee, released the Fall 2019 edition of "The Waste Report". This periodic report looks at how the Government spends taxpayer dollars and identifies eight examples of wasteful spending totaling $230 million. Outside of salaries and wages, social security, medicare, and other social program payments, the primary vehicle for the Government's spending is through contracts and grants. The eight examples of wasteful spending in this current report are rooted in Government contracts and grants. Here's a couple of examples.

The Government purchased textbooks for Afghan schoolchildren to develop, implement, and scale up a nationwide early grade reading curriculum and instruction program. An audit by the Office of Inspector General for Afghan Reconstruction found that the textbooks had significant quality deficiencies, such as loose or blank pages, misspellings, and low-quality paper. A few hundred thousand were still sitting in warehouses but the OIG learned that there were no plans to distribute them. Moreover, many schools reported that because of the poor quality, the books were no longer in usable condition. The grantee responsible for printing and distributing the books blamed parents, students, and school officials for the problem of books falling apart.

The NIH (National Institute of Health) has spent $4.6 million studying the connection between drinking alcohol and winding up in the emergency room. The connection between drinking and driving should be common sense but NIH doesn't trust common sense and doled out money to study the connection between drinking alcohol, hurting yourself or somebody else, and winding up in the ER. So what have scientists concluded? That there is a correlation between drinking and getting hurt. Who in the Government thought that spending $4.6 million for this study was an good use of taxpayer dollars?

The Waste Report is only 16 pages and makes some interesting reading. Don't blame the contractors though. They're just providing a service for what the Government wants to buy.