What Happens When the Contracting Officer Disagrees with the Contract Auditor?

Contract auditors perform audits and issue reports, sometimes with recommendations or questioned costs, to the contracting officer. The contracting officer, in turn, resolves the audit findings with the contractor. Sometimes, the contracting officer does not agree with the audit findings; more so if the audit relates to pricing proposals than with historical costs. Why? When it comes to pricing proposals, everyone's dealing with estimates of future costs and judgement becomes a big part of estimating. Incurred cost on the other hand deal with historical evidence supporting the incurrence of costs. Contractors either have support or they don't. Judgement is not a major factor on the allowability of costs.

The Defense Department has made it very clear that when it comes to its contracting officers and its contract auditors (namely the Defense Contract Audit Agency), the contracting officer will rule the day. In a 2009 memorandum, the Defense Department states as official policy:

It is neither expected nor necessary that the contracting officer and the contract auditor agree on every issue. They have different, yet complementary, roles in the process. It is expected that the auditor and contracting officer will work together recognizing that it is the contracting officer's ultimate responsibility to determine fair and reasonable contract values.

That particular guidance anticipates that when the contract auditor and contracting officer disagree on particular issues, the matter be elevated  to successively higher levels until there is an agreement. That means one side or the other will need to give in.

Sometimes, auditors become so entrenched in their positions that they seemingly refuse to listen to the contractors' side of an issue or acknowledge that there might be merit to the position. In those cases, it is often better to take the matter up with the contracting officer, knowing that in the end, the final decision rests with them.