Withholds for Inadequate Business Systems

Yesterday we alerted you to the proposed DFARS (DoD FAR Supplement) regulation requiring contracting officers to withhold billings for contractors with inadequate business systems. These business systems include accounting, estimating, purchasing, earned value management, material management and accounting, and Goverment property.

This new regulation will affect all Defense contractors to varying degrees. It depends on the existence of other contract provisions. Absent these clauses, the withholding provisions do not apply. Following is a table that lists the pertinent clauses for each of the business systems.

You will need to review your specific contract(s) to verify whether these clauses exists. However.here are some general guidelines. The requisite clauses for accounting (propsed), estimating and purchasing are to be included in all contracts. All contractors will be affected in these three business systems. EVMS applies to cost-type contracts over $20 million. MMAS applies to most contracts however it woud be "not applicable" unless there is manufacturing going on. Government Property applies only if there are Government furnished materials under the contract.

In future posts, we will be discussing the withhold percentages, processess for determining adequacy/inadequacy, and the Government's expectations for systems' capabilities.