The (dreaded) DCAA Form 1

If you haven't heard about the DCAA Form 1, you probably haven't had very many cost type contracts or you haven't been in the Government contracting business for very long.

DCAA auditors use the DCAA Form 1 to suspend or disapprove costs on cost-reimbursable contracts.

• Suspend: Auditors use the form to suspend unsupported direct or indirect costs until the required data are received and a determination can be made as to the allowability of the costs in question.

• Disapprove: Auditors use the form to disapprove direct or indirect costs for which audit action is complete, the costs are considered unallowable, and the contractor does not concur. For disapproved costs, the procedures for issuing a Form 1 varies based on wither the costs are audit determined or ACO negotiated.

Suspended or disapproved costs are withheld from future billings. If the costs were charged direct to a contract, the unsupported costs will be withheld from a future billing.If the suspended or disapproved costs are indirect, they will be withheld from all contracts to which indirect costs were allocated, most likely through an adjustment to billing rates.

Auditors normally allow contractors "sufficient time" to provide supporting data for any claimed and/or billed costs. "Sufficient time" is not defined and carries a level of subjectivity. In responding to auditor requests for supporting data, there are a couple of things to be aware of.

1. If a contractor has a systemic problem with readily supporting claimed costs, the auditors may well view this as an accounting system deficiency and reflect the deficiency in its internal control assessment. Poor internal controls will lead to increased audit oversight and could potentially affect the award of future contracts.
2. When auditors experience unreasonable delays in obtaining supporting data and significant claimed costs remain unsupported by the contractor, they are guided to consider whether to report an "Access to Records" deficiency. This escalates the issued outside the immediate DCAA office, puts the contractor on a "list" and could (but not likely) lead to a subpoena.

For contractors approved for direct billing, processing the DCAA Form 1 may require the contractor's direct billing authority to be temporarily rescinded. This would add a fews days, perhaps a week or more, in getting paid. The disruption of cash flow can hurt.

Contractors who feel they are not being given adequate opportunity to respond to an auditor request, can and probably should present their case to thew contracting officer.