DCAA's adequacy checklist for incurred cost proposals contains the following items relative to Schedule J.
- Ensure the schedule includes all types of subcontracts (e.g. cost-type, T&M, IDIQ, and FFP) and intra-company costs claimed by the contractor on flexibly priced prime and/or upper-tier subcontracts.
- Ensure the contractor has included all of the detail for the subcontracts (subcontract number, prime contract number, subcontractor's name and address, point of contract, subcontract value, period of performance, costs incurred in the FY, and award type).
So, according to the DCAA checklist, Schedule J should be limited to subcontracts and intra-company transfers awarded under flexibly-priced subcontracts and upper-tier subcontracts. That eliminates any subcontracts awarded under fixed-price contracts, which makes sense. Note here that DCAA's checklist includes intra-company transfers, something that the FAR does not require.
The necessity to include flexibly-priced subcontracts in Schedule is rather obvious. Those subcontracts need to be audited before the auditor of the prime contract can render an opinion on the propriety of contract costs. The auditor needs to determine whether the subs have been audited by either a Government contract audit agency or by the contractor's own internal audit staff. Someone has to audit the subs and attest to the allowability, allocability, and reasonableness of those costs.
But why fixed-priced subcontracts awarded under flexibly-priced contracts and upper-tier subcontracts? Should they be included or excluded from Schedule J? Here's where things often get contentious. Obviously, fixed price means fixed price and the costs of a fixed price subcontract does not need to be audited. The costs still need to be supported but the support required for fixed priced subcontracts would be the same as for any other type of cost; labor, materials, ODCs, etc.
But DCAA has an answer to this question. They need fixed-priced subcontract information in order to perform a purchasing system review as part of their incurred cost procedures. Referring to the Standard Audit Program for incurred costs, DCAA has directed its audit staff to
- Review the results of the DCMA purchasing system review for any risks identified in subcontracting.
- Arrange for a meeting to discuss subcontract management processes and the exten of the contractor's evaluation of subcontract costs to ensure compliance with FAR 15 and FAR 31.
- Determine if approvals were made at adequate levels, materials/services were needed for the contract, prices and units on the invoices match prices and units on the purchase orders, goods were received, prime contractor paid the subcontractor prior to claiming the cost on the prime contract, and costs were properly recorded.
An auditor can perform the preceding steps without having the fixed priced subcontracts listed in Schedule J. To us, it seems like quite a stretch to insist otherwise. However, it is usually more efficient in the long run to simply provide whatever data a particular auditor deems is required under this provision.