Tuesday, March 6, 2018

Update of DCAA's Incurred Cost Proposal Checklist

DCAA (Defense Contract Audit Agency) recently updated its incurred cost proposal adequacy checklist. Its available for download here. The fundamental requirements of the annual incurred cost proposal are found in the Allowable Cost and Payment Clause at FAR (Federal Acquisition Regulations) 52.216-7(d)(2)(iii). There are 15 items listed - numbered (A) through (O) - which correspond to Schedules A through O in DCAA's Excel Incurred Cost Model. DCAA has taken these 15 items and created a checklist comprised of 47 questions that auditors use while reviewing contractor submissions for adequacy. The Agency has made this checklist public so that contractors can self-assess their proposals prior to submitting them to the Government.

Some contractors have criticized the checklist for going beyond the intentions of the FAR councils when developing the regulations. And to be certain, they have a point. For example, Schedule J in FAR requires certain information concerning subcontractors. Schedule J in the checklist queries for not only subcontracts but for inter-divisional transfers as well. There are many others. However, we don't find DCAA's "additions" objectionable. DCAA has had a lot of experience auditing incurred cost submissions and they have a pretty good idea of what make a submission adequate for an efficient audit.

This latest checklist contains a few minor changes. It is now a Word document rather than a PDF which is nice and will facilitate collaboration among contractor team members responsible for ensuring proposal adequacy. Questioned are now numbered rather than bullets which improves referencing. Now one can simply refer to "question 22" rather than "Section J, second bullet". Overall, there is nothing in the new checklist that would render previous editions obsolete.

The checklist contains a cautionary statement concerning the use of blended rates. As you may recall, compensation under contracts awarded after June 24, 2014 is capped at an amount significantly less than pre-June 24th contracts. This creates a bit of an implementation problem for contractors that have both pre and post June 24th contracts. Refer to Using Blended Labor Rates to Implement New Compensation Caps. The Defense Department established a mechanism to allow contractors to implement the new caps by develop a weighted average of the old and new caps. Using blended rates requires an advance agreement between the Government and contractors. Absent such an advanced agreement, DCAA's checklist instructs auditors to consider proposals that use blended rates but don't have an advanced agreement attached, to be inadequate.

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