Small-Business Contracting Goals - Will Remain the Same

This is our third and final posting on the 2013 National Defense Authorization Act (NDAA) that was released from conference committee last week. This Act has yet to pass the full House and Senate but from all accounts, it will. Previously we reported on two provisions in the Senate's version that did not make it out of committee, the arbitrary caps on employee compensation and the unlimited access to internal audit reports by Government auditors.

One of the provisions that did not make the final cut was to increase the small-business contracting goal from 23 to 25 percent. Section 1631 of the Senate's version included a provision that allowed the President to set small-business contracting goals at whatever he wanted but not less than 25 percent. Every year, it seems, small-business advocates try to increase the statutory goals for awarding contracts and subcontracts to small businesses. And, each year the provisions get pulled.

Of course, goals are goals and the real measure of success is ascertaining how well the Government is doing in achieving those goals. So far, the Government has never met the old goal of 23 percent so what is the point in increasing a percentage that cannot be met? OMB (Office of Management and Budget) recently announced an initiative to help Government agencies meet those goals. You can read about that initiative here.

DCAA Access to Contractor Internal Audit Reports

Yesterday we wrote about how the conference committee eliminated a provision in the Senate's version of the 2013 National Defense Authorization Act (NDAA) that would limit the reimbursement of compensation paid to contractor employees to that of the US Vice President. Today we want to highlight another change the conference committee made to the NDAA. This one involves access to contractor internal audit reports.

Under the Senate's version of the 2013 NDAA, contractors would have been required to grant access to internal audit reports and failure to do so, could render a particular business system deficient and subject the contractor to billing withholds.

Under the conference committee's version (expected to pass), the requirement to provide internal audits has been eliminated. Instead, the Act will require that if DCAA needs internal audits, it will request them, document the request, and document the contractors' response to the request. That's it. End of story. If the contractor denies access, there are no ramifications.

If the contractor does provide access, the internal audit reports can only be used by DCAA to evaluate the efficacy of contractor internal controls and the reliability of associated contractor business systems. A determination by DCAA that a contractor has a sound system of internal controls shall provide the basis for increased reliance on contractor business systems or a reduced level of testing with regard to specific audits, as appropriate. Internal audit reports provided by a contractor pursuant to this section may be considered in determining whether or not a contractor has a sound system of internal controls, but shall not be the sole basis for such a determination. This also means that the reports cannot be used as a basis for withholding billings.

Contractor's can breathe easier, for awhile. They will not be required to turn over internal audits if they so choose.