More Recommendations for the Section 809 Panel

From time to time, we provide updates to some of the activities of the Section 809 Panel, an advisory panel created by the 2016 NDAA (National Defense Authorization Act) to make recommendations on streamlining the Defense Department's acquisition regulations. The Section 809 Panel solicits recommendations and ideas from anyone that has an interest in Government procurement and wishes to offer up ideas for streamlining the acquisition process.

Last week, The Coalition for Government Procurement submitted a list of 30 specific recommendations for (i) reducing unnecessary regulations on industry, (ii) empowering successful acquisition management and (iii) strengthening inter-agency contracts to ensure that DoD contracting officers can make informed contracting choices. The Section 809 Panel is reviewing those recommendations now, The Coalition's report can be found here.

So what were some of their recommendations? Well, to be honest, we haven't read the full 94 page report ourselves. That seems a bit much to ask, no? But we did review the titles of the 30 recommendations, scanned through the document, and read the details of a few that sounded interesting. Here are some samples:

1. There were a few suggestions that appear outside the scope of the Panel's mission. For example, the Coalition recommended that a change required by the 2017 NDAA - competition at the task order level - be expanded to civilian agencies as well.
2. Permanent sun-setting - the Coalition recommend a procurement sun-setting on all procurement regulations not required by statute.
3. Eliminating the requirement to report executive compensation - this will save contractors 55,000 hours every year and the requirement has dubious benefits.
4. Increase the micro-purchase threshold to $10,000 (from $5,000). Affects only one percent of spending but would increase the speed of thousands of transactions.
5. Streamline the cumbersome SAM (System for Award Management) registration process. The current process is intimidating for new businesses seeking to sell to the Government.
6. More training for the acquisition workforce (a recommendation that comes up every year)
7. Modernize FedBizOpps - it lacks many of the features found on comparable commercial market platforms.
8. Change the auditing process - This recommendation is not a slam against DCAA.  Rather it is a recommendation that civilian agencies use organizations other than their own Inspector General offices to conduct contract audits.

You can read (or peruse) the full report here.

Update on Section 809 Panel

It is time for an update on the activities of the Section 809 Panel, an advisory panel formed to streamline the Defense Department's acquisition regulations. The name 'Section 809 Panel" comes from Section 809 of the Fiscal Year 2016 NDAA (National Defense Authorization Act). For more information on this panel, refer to "New Advisory Panel to be Formed to Streamline Acquisition Regulations". Briefly, the Section 809 Panel's overarching objective has been to make recommendations that, if adopted, will enable DoD to more consistently buy what it needs in a timely and cost-effective manner - whether that be commercial items, information technology, services, weapon systems, or the full range of tools and equipment on which war-fighters depend.

One thing for certain, the Section 809 Panel has been very active, holding monthly meetings and frequent stakeholder meetings. Its 18 appointed commissioners have been augmented by 30 or so professional staff members. Its got its own website (section809panel.org) with plenty of information on its activities and research. This past May, the Panel published its first interim report where it set forth the framework under which it intends to focus its work and recommendations. These include:

1. Adapt at the speed of a changing world
2. Leverage the dynamic defense marketplace
3. Allocate resources effectively
4. Simplify acquisition
5. Enable the workforce

The one that we're most interested in is number 4, simplifying the acquisition process but all five are tightly integrated. For example, you can simplify the acquisition process now but if you are not adaptable to the speed of a changing world, the acquisition process will soon feel cumbersome once again.

There have been many failed attempts at acquisition reform so what makes the likelihood that the Section  809 Panel will succeed (or have some modicum of success). The committee recognizes the fact that past reform initiatives have not had much success. That is why one sees the word "Bold" used liberally in their publications and website. In its Interim Report, the Panel makes the following observation:

In the last 50 years, there have been more than 100 reports, studies, and analyses of how DoD acquires goods and services. From these reports, the lesson learned is clear. Tinkering and incremental approaches to acquisition reform have not provided the necessary results and are especially ineffective in today's rapidly changing environment. In fact, incremental approaches have exacerbated problems with the acquisition system by adding more layers of sign off, mountains of paperwork, and hundreds of additional regulations. DoD must implement bold approaches and bold solutions to produce true reform (underscore added).

Its not too late to get in on the action. The stakeholder meetings are open to the public and there are ample opportunities for present their reform ideas for consideration. At one recent Panel meeting, a presenter offered five recommendations for reform:

• Give contractors a total contract price range in the solicitation. It would be helpful to know whether the Government wants and can afford a Mercedes or whether it just has the budget for a used Yugo with ripped upholstery.
• Make GAO the only forum for bid protests. Have you ever been the awardee who has to stop work as the protester ties up the award through multiple forums?
• GSA cannot be on the leading edge of technology because it requires contractors to have previously sold the product or service before it can add it to a GSA Schedule. So, GSA is always looking backwards and not forward.
• Eliminate the use of cost reimbursable contracts for low tech services when the end product is just the service.
• Post awarded (redacted) contracts to a common website rather than make people go through the burdensome process of requesting them under the Freedom of Information Act.

These are just a few of probably hundreds, if not thousands of ideas that have been proffered for consideration by the Panel. If you've got some, this is the time to let the Panel know. Spend some time on their website and see whether you can contribute.

PSC's Agenda for the Next President

The Professional Services Council (PSC) calls itself " ... the voice of the government technology and professional services industry, representing the full range and diversity of the government services sector." It has more than 400 member companies representing small, medium, and large businesses who employ hundreds of thousands of workers in all 50 states.

The PSC just released a report entitled "An Agenda for the Next President of the United States". The agenda identifies a number of specif issues and actions, grouped around four main areas; harnessing technology and new business models to modernize Government service delivery, improve Government operations to better compete globally, build a better engagement model to bring the best ideas and solutions from industry into Government, and develop the Government and industry work forces of the future. It is the last of these agenda items that we want to highlight today.

PSC writes:

Attracting and retaining the workforce of the future is a crucial imperative for both federal agencies and the contractors that support those agencies. There is a war for talent, competition is fierce and new approaches must be considered to create an environment that encourages our best and brightest to take on careers of public service. ... there are continuing challenges that are preventing new employees from remaining in the government and having the tools and experiences to optimize their performance and contributions.

The organization writes about a capacity gap, a capability gap, and a confidence gap. The capacity gap refers to the current workforce not having the time and resources to keep up with demand. We could not agree more. The capability gap comes from hiring, training and retaining workers. We think the primary contributor to this gap is employee retention. The Government has no problem hiring and its training programs (including on-the-job training) is top-notch. However, when private industry, including PSC members themselves dangle a boat-load of dollars in their faces to jump ship, they leave. Pay equality would solve some (perhaps a lot) of the retention gap. The confidence gap refers to current workers unprepared or unwilling to take well-reasoned risks to achieve potential innovations or cost savings, instead of defaulting to familiar, often sub-optimal, strategies.

One of PSC's solutions is to dump the Government employees and hire more (PSC member) contractors. PSC writes: "...government leaders must also be thinking about and addressing the appropriate mixture of government and contractor personnel to achieve agency mission needs." There have been many many studies over the years comparing the cost of government service versus privatization. These studies have varied and conflicting results and there is certainly no consensus on which is most cost-effective.

You can read the full report by clicking here.

New Panel Convened to Streamline DoD Acquisition Regulations

The Department of Defense announced the establishment of the Advisory Panel on Streamlining and Codifying Acquisition Regulations, as directed by the Fiscal Year 2016 National Defense Authorization Act (NDAA). This panel is to conduct a "thorough and independent" assessment of acquisition regulations applicable to the Department of Defense.

DoD also announced that Deidre Lee, former Director of Defense Procurement and Acquisition Policy and former Office of Federal Procurement Policy (OFPP) Administrator, is leading an 18 person panel which will be assessing regulations and associated laws to determine which are essential and which slow down the process unnecessarily. In addition to exploring possible regulation changes, the panel will also look for approaches to defense acquisition that are working well and should be expanded.

The Panel will have two years to complete their work, develop recommendations to amend or repeal regulations they determine necessary in order to:

• Establish and administer appropriate buyer and seller relationships in the procurement system
• Improve the functioning of the acquisition system
• Ensure the continuing financial and ethical integrity of defense procurement programs
• Protect the best interests of the Department of Defense
• Eliminate any regulations that are unnecessary for the purposes described.

For more information on this panel including biographies of all eighteen members, visit their website. The Panel includes a former director of the Defense Contract Management Agency (DCMA) but unfortunately, no current or former representative from the contract audit community.

Better Buying Power's (BBP) Underlying Principles

The "Better Buying Power" (or BBP) catch-phrase used to label the Department of Defense's recent rounds of acquisition reforms should be familiar to most Defense contractors. The somewhat evolving list of initiatives began with BBP 1.0 in 2010. In 2012 more initiatives were added under BBP 2.0. Last year, the Department rolled out its current iteration of initiatives, BBP 3.0.

The DoD employees that comprise the Department's acquisition corps however do not fully appreciate these latter rounds of faddish fluff. To most of them, their daily lives are business as usual. The 2,000+ pages in the Federal Acquisition Regulations, the 1,000+ pages in the DoD FAR Supplement (DFARS) and the 500+ pages in DoD Procedures, Guidance, and Information, leave little room for them to be quick, nimble, lean and mean or time for contemplating ways to improve the Department's buying power.

Recently, the Under Secretary of Defense for Acquisition, Technology, and Logistics, Frank Kendall, felt compelled to issue a set of 10 BBP principles - principles that underlie the specific initiatives found in the BBP programs. Here they are and if you want to read more details, click here.

1. Continuous improvement will be more effective than radical change.
2. Data should drive policy. It is difficult to manage something you cannot measure.
3. Critical thinking is necessary for success; fixed rules are too constraining.
4. Controlling life-cycle cost is one of our jobs; staying on budget isn't enough.
5. People matter most; we can never be too professional or too competent.
6. Incentives work - we get what we reward.
7. Competition and the threat of competition are the most effective incentives.
8. Defense acquisition is a team sport.
9. Our technological superiority is at risk and we must respond.
10. We should have the courage to challenge bad policy.

"Eliminating Requirements" Study - Reduce Records Retention Periods

In 2013, DoD, along with the Institute for Defense Analyses (IDA), a Federally Funded Research and Development Center, initiated a study to identify unnecessary requirements for which costs exceed benefits with the goal of reducing unnecessary and costly statutes and regulations. The study focused on six broad areas based on industry input including (i) acquisition of commercial items, (ii) contract auditing and management, (iii) component specific supplements to DFARS, (iv) application of earned value management, (v) TINA (Truth in Negotiations), and (vi) application of the Buy American Act (BAA).

Twelve of DoD's largest suppliers were invited to participate in the study which ended in December 2014. Each of these companies provided input into the areas they chose to address. None of the companies provided input into the component specific supplements to DFARS area. Two areas, earned-value management and contract auditing and management, generated the most responses.

Over the next few days, we will be posting highlights of this study, focusing primarily on topics contract audit and management topics. Today we will discuss the contractor recommendations to change record retention policies related to original scanned images.

Two of the 12 contractors participating in this study recommended changes to the retention of original paper records. The crux of their arguments that that requiring originals of scanned images to be retained for one year is unnecessarily burdensome.

FAR 4.703 includes language that states original records need not be maintained or produced in an audit if the contractor provides photographic or electronic images of the original records and meets certain requirements. One of those requirements is for Government contractors to maintain their original records for a minimum of one year after imaging to permit periodic validation of the imaging system.

The study concluded that there is no compelling evidence to make changes to to policies. The FAR 4.703 requirement to retain original hard copies of scanned images to allow verification that scanned copies are accurate seems reasonable. The study noted that DCAA (Defense Contract Audit Agency) has no policies that add to this requirements but did recommend that DCAA might want to revisit it's policy on the frequency of testing scanned images to original documents.

The full Eliminating Requirements Imposed on Industry Study report can be downloaded here.

Go on to Part 2

New Advisory Panel to be Formed to Streamline Acquisition Regulations

 One of the provisions in the Fiscal Year 2016 National Defense Authorization Act (NDAA) is a requirement for the Department of Defense to convene an advisory panel on streamlining and codifying acquisition regulations. Although the President vetoed the bill last month and it is being reworked, the advisory panel provision will undoubtedly remain. It is not one of the disputed items. The duties of the advisory panel are two-fold:

1. Review the acquisition regulations applicable to the Department of Defense with a view toward streamlining and improving the efficiency and effectiveness of the defense acquisition process and maintaining defense technology advantage and
2. Make any recommendations for the amendment or repeal of such regulations that the panel considers necessary to: 

• establish and administer appropriate buyer and seller relationships in the procurement system
• improve the functioning of the acquisition system
• ensure the continuing financial and ethical integrity of defense procurement programs
• protect the best interests of the DoD and
• eliminate any regulations that are unnecessary. 

25 years ago, a similar panel was convened and became known as the Section 800 panel. Recommendations from this panel led to a few acquisition reforms such as the Federal Acquisition Streamlining Act (FASA) and the Clinger-Cohen Act. In the intervening years, the Senate Armed Services Committee believes that the acquisition system is again burdened by unnecessary laws and regulations that are creating incentives to slow down acquisition and not obtain the best value when purchasing goods and services for the Defense Department and the taxpayer.

The panel will be composed of nine recognized experts in acquisition laws, regulations, and policy. Persons appointed to the advisory panel must be able to devote a substantial amount of time to the effort, not operating as a board that directs the work of a staff but actually performing the primary work.

The panel will have two years to complete its work.

Reform of the Defense Acquisition System

Earlier this week we completed our series on DoD's latest acquisition reform initiatives, collectively referred to as BBP (Better Buying Power) 3.0. Acquisition reform within DoD is a tiresome subject - since the 1960s, that have been at least 27 major studies of defense acquisition by DoD, Congress, the White House, and think tanks, all proposing various reforms. Its no wonder that the those with long-term experience in acquisition hear of the latest bright ideas, just shrug, and go about doing what they've always been doing.

Yesterday, the Subcommittee on Readiness and Management Support of the Senate Armed Services Committee held a hearing on procurement reform. There were three witnesses, one each from the Army, Navy, and Air Force. Here are some excerpts from prepared testimony.

Acquisition reform has proven elusive...Nearly each effort has attempted to define legislative solutions, create new processes and propose additional oversight to challenges that are, in many respects, endemic to defense acquisition. The objectives of reform are all too familiar: tackling cost and schedule growth ..., addressing unrealistic program requirements, streamline a process that is bureaucratic, ponderous and slow, and addressing the need for a skilled and professional acquisition workforce....Prior efforts at reform have mostly resulted in greater oversight, added bureaucracy and the associated prolixity of statutes and regulations, slowing down the process substantially (ARMY).

...history and experience have demonstrated that programs succeed when they adhere to basic principles: (a) get the requirement right; (b) perform to a stable plan; (c) make every dollar count; (d) rely on an experienced acquisition workforce; and (e) foster a healthy industrial base (NAVY).

... laws upon laws will not improve the acquisition process.. While we believe these laws were created with the best intentions, as our processes increase in complexity, many of the statutory requirements continue to grow, resulting in duplicative and often overly cautious requirements whose burdens outweighed their values (AIR FORCE).

Seems like everyone understands the difficulties in trying to reform acquisition in DoD (and the Government in general). While the testimonies offered similar perspectives, none provide a clear path forward to procurement reform.

You can read the full testimonies and watch the actual hearing by clicking here.

BBP 3.0 - Provide Clear and Objective "Best Value" Definitions

Last week we began a series on DoD's latest acquisition reform initiatives collectively referred to as Better Buying Power (BBP) 3.0. In total, there are 34 initiatives packaged into BBP 3.0 and you can see all of them in DoD's April 9, 2015 implementing directive. Some of these initiatives are internal to DoD like strengthening contract management. Our purpose is this series however is to focus on five that could impact a lot of Government contractors or prospective contractors. So far we've discussed (i) removing unproductive requirements imposed on industry, (ii) increasing the number and quality of should-cost reviews, and (iii) increasing the use of CPIF and FPIF contracts. Today we will discuss DoD's initiative to provide clear and objective "best value" definitions.

Included in the listing of initiatives to "Incentivize Innovation in Industry and Government", is a goal to provide clear and objective "best value" definitions to industry. This would make a lot of contractors very happy, if they can pull it off. Everyone understands awards made to the lowest bidder. But when other factors are introduced into the award criteria, a lot of bidders wonder whether the deck is stacked against them, that the Government has already decided on the "winner" and is using subject factors to make sure the award goes the way they want it to go. Many bid protests appealed to the GAO involve the Government's application of the "best-value continuum".

Under a best-value continuum, there is a recognition that the Government seeks to obtain the best value using different source selection approaches. At one end of the continuum there is the lowest price technically acceptable (LPTA) strategy. At the other end is the higher-price technically superior strategy. Factors such as price, past performance, and technical considerations are weighed to identify the quote that provides the Government with the best value. Part of the best value trade-off analysis involves conducting a risk analysis to consider whether the Government is willing to pay for achieving socioeconomic objectives, better past performance, better technical approach, or better management capabilities. When the Government decides to use non-price factors, which means that other than LPTA, the ordering activity must clearly state the priorities in the solicitation.

The BBP 3.0 initiative is to provide industry with information on the value, in monetary terms, of higher levels of performance than minimally acceptable or threshold levels. So, for example, if "minimally acceptable" is the baseline, what price premium will "good" or "outstanding" or "superior" add. Will it justify a price that is 5% higher, 10% higher, or what? With such information, contractors (and prospective contractors) will know what the competitive effect of offering higher performance will be and can bid accordingly. Not only will the information be useful to the bidding process but DoD expects that the practice will create incentives to encourage industry to innovate.

DoD plans to publish a Best Value process manual by May 2015. In the meantime, the Department has instructed its acquisition folks to ensure that best-value definitions for above threshold performance levels are transparent and objective and stated in monetary terms as much as possible.

Better Buying Power 3.0 Initiatives On Their Way

We've been following DoD's Better Buying Power (BBP) Initiatives for several years. BBP 1.0 introduced in 2010 included initiatives to

• Target affordability and control cost growth
• Incentivize productivity and innovation in industry (tie profits into performance)
• Promote real competition
• Improve tradecraft in services acquisition
• Reduce non-productive processes and bureaucracy (most contractors would have a lot of ideas for this one)

In late 2012, the Department introduced BBP 2.0. The initiatives in BBP 2.0 included:

• Achieve affordable programs
• Control costs throughout the product lifecycle
• Incentivize productivity and innovation in industry and Government
• Eliminate unproductive processes and bureaucracy
• Promote effective competition
• Improve tradecraft in acquisition of services
• Improve the professionalism of the total acquisition workforce

Last week, the DoD announced the projected release of BBP 3.0;, the latest iteration of initiatives designed to achieve more with less. Although the specific initiatives within BBP 3.0 will not be announced until October, the Undersecretary of Defense for Acquisition Technology and Logistics indicated that the focus will be on the "product" side - moving innovation into the hands of the war-fighter. Some of the initiatives include:

• Achieving affordable programs and dominant capabilities
• Providing greater incentive to the commercial sector to better leverage technology
• Introducing a variety of contract types, business skills, incentive structures and different ways of doing business to be mutually beneficial to government and industry.
• Prototyping at the system level to advance technology, preserve design teams and reduce lead time to future capabilities
• Ensure insertion points in programs to bring new technology in as a product in service over its lifetime
• Emphasize better feedback to industry
• Build stronger cooperation and partnerships 

A big difference in 3.0 from the other iterations is a focus on cooperation between the Government and contractors. That would be a good thing. One initiative that BBP 1.0, 2.0, and 3.0 have in common is "affordability" and "controlling costs". That's really the bottom line when it comes to procurement.

Got Ideas on How to Improve the Federal Acquisition Process? Here's an Opportunity to Get Your Two Cents In.

From now through May 5th, the Chief Acquisition Officers Council (CAOC), in coordination with the Federal Acquisition Regulatory Council, the Chief Information Officers Council, and the Office of Management and Budget's (OMB) Office of Federal Procurement Policy (OFPP) is conducting a notional dialogue to discuss burdens and barriers associated with the federal acquisition process and ways to address them. According to the CAOC, this dialogue is part of an effort to improve the economy and efficiency of the federal acquisition system by identifying "impactful" steps that can be taken to make it easier for agencies to do business with the best companies and enter into contracts that allow these companies to provide their best solution for the taxpayer.

The purpose of this dialogue is to discuss improvements to the Federal contracting process. Through this "discussion" based platform, CAOC will gather ideas and proposed improvements that can be accomplished through executive (regulatory, administrative, or management) action, as well as potential legislative proposals (new laws). The open dialogue is focused around three topics (OICC calls them "campaigns). These topics include:

• Reporting and compliance requirements - Currently the Government requires businesses to fill out a lot of complicated paperwork. OICC wants to know how it can reengineer paperwork and systems, eliminate duplicative reporting, reduce the frequency of reporting, and change outdated requirements.
• Procurement rules and practices - Companies doing business in the private sector have best practices and the Government would like to learn about and replicate those in the Federal Government wherever possible. 
• Participation by small and minority businesses, new entrants, and non-traditional Government contractors - Many businesses lack the resources and expertise to participate in the Federal marketplace. CAOC is looking for feedback to understand what steps can be taken to increase participation among entities not currently participating in Federal contracting.

Everyone is welcome to share thoughts, ideas, suggestions, and comment on other suggestions.  Here's an example of a comment recently posted to the site.

To participate in this forum, click here. Go back often. At the end of the process, CAOC will publish a summary document that highlights the key concepts, themes, and the ideas that emerged in the dialogue.

Reducing non-Value-added Requirements

Last week, the Department of Defense announced the next phase of its goal to reform some of its cost-inflating practices. DoD understands that contractors expend costs and other resources on mandates, reporting requirements, and other acquisition practices that do not add value added to systems and services delivered to DoD. The Department is now asking contractors to identify those issues and back them up with specific, credible, convincing data.

During the summer of 2010, industry voluntarily furnished nearly 500 suggestions to the Department of Defense. Some suggestions were adopted right away but many others involved changes that can only be made over the longer term or require additional follow-up data before they are ready for possible action. DoD is hoping that its new request for comments will yield the additional data that it needs along with information about some additional areas of non-value-added cost.

DoD plans to use these submissions as part of its internal deliberations and expects to seek further industry comment at a public meeting where industry experts in contract management and finance will offer comments on the topic areas raised to ensuring that the results are not idiosyncratic or overly influenced by particular companies' cost structures.

This is a great opportunity for contractors to participate in the development of procurement policies and procedures.

OMB Goes Shopping for a Talented Acquisition Workforce

The Office of Management and Budget (OMB) has just issued a memorandum to Government HR and acquisition folks advising them how to use the many available special hiring authorities to devise "effective hiring strategies" for attracting "talented individuals" to the acquisition profession. An agency's acquisition workforce is critical to ensuring taxpayer dollars are spent wisely. The government relies on its acquisition workforce to negotiate and administer contracts for over $500 billion per year. "Talented individuals", the OMB concludes will allow agencies to achieve cost savings, reduce risk in their contracting practices, and improve acquisition and project management. The OMB also believes that agencies should develop strategies to improve the visibility of acquisition jobs, target specific skill sets, and reduce wherever possible, the administrative burden on the agency and the applicant. Anyone that has ever applied for a Government job will appreciate the latter goal.
 

OMB is also developing new tools to be used in conjunction with the traditional interview. One of the new tools being developed to help agencies build their workforce is a new online applicant assessment tool. This assessment tool will use state-of-the-art Computer Adaptive Testing which adjusts the level of difficulty of questions based on an applicant's previous responses. Animated situational judgment assessments will present applicants with occupation-specific scenarios and ask them to respond. These tools will measure an a applicant's proficiency in a variety of general competencies, such as interpersonal skills, math, reading comprehension, and logical reasoning. These tools, of course, are being developed under contracts awarded by non-talented acquisition workforce personnel at prices far in excess of their intrinsic value and triple the prices available on the open market. Because of poor and sloppy project management practices, the tools will be rolled out 18 months later than expected and will crash everyone's computer. Well, maybe we're a bit sarcastic here but we want to underscore a very important point. The government acquisition corp is loaded with talented and dedicated individuals who work sacrificially to ensure the government is getting the best prices. Attracting talented individuals to the acquisition workforce is not the problem. Retaining them is the problem. While some leave because they feel uncomfortable in the "system", many gain experience and develop expertise and then leave because contractors offer them financial packages they cannot refuse.

Click here if you would like to read the entire OMB strategy (16 pages).

The State of Federal Contracting

The U.S House Committee on Oversight and Government Reform, Subcommittee on Management, Organization, and Procurement recently held a hearing on "The State of Federal Contracting: Opportunities and Challenges for Strengthening Government Procurement and Acquisition Policies". There were witnesses from the Government and from industry including law firms specializing in Government procurement. One consistent theme from all of the witness concerned the Government's acquisition workforce. Witnesses from DoD, GSA, and OMB highlighted reforms already underway while industry witnesses testified that additional reforms are needed - reforms like more people, more training, and more appreciation. To read all of the prepared testimonies, go here.


One of the law firm witnesses discussed a topic that resonated with us. She identified three of what she believed were the three most significant challenges facing procurement. This first of the three, and the one she spent the most time discussing was the Defense Contract Audit Agency. She testified that:

"Over the past several months, ...(DCAA) ... has adopted aggressive new audit policies that are wreaking havoc on the Government procurement world.... DCAA has strayed far a field of its primary mission, and appears to be focusing its efforts on 'systems' audits that are time-consuming and disruptive and often have little if anything to do with actually protecting the Government against unallowable costs."

The attorney was referring to a policy that DCAA revised in December 2008 that significantly altered the manner in which DCAA reports on contractor internal control systems. Prior to December 2008, DCAA reported significant deficiencies or material weaknesses in a contractor's internal control system only when the deficiency adversely affected the contractor's ability to initiate, authorize, record, process, or report on Government contract costs in accordance with applicable laws and regulations and the deficiency resulted in a reasonable possibility that unallowable costs will be charged to the and Government and the potential unallowable cost is not clearly immaterial. Under the new guidance, auditors are required to report significant deficiency/material weakness whenever the contractor fails to accomplish any control objective tested, regardless of whether the control objective is directly related to charging costs to Government contracts and even when the deficiency has not resulted in nor will unlikely result in any questioned costs.

Of course, no contractor could want or afford an "inadequate" opinion on one or more of its internal control systems. The consequences are too great including ineligibility for award of contract if the accounting system is inadequate or the loss of direct bill authority is the billing system is inadequate. The attorney noted that there is no statutory, regulatory or contractual basis for many of the control objectives that DCAA uses to conduct its audits. She also stated that many of the control objectives are subjective, and reasonable minds can differ about what is or is not adequate. Not only are some of the control objective very subjective but we would add that some auditors do not consider "materiality" before asserting a contractor's failure to comply nor do they assess whether such a failure might result in unallowable costs ending up on a Government contract.

The attorney concluded by stating that the net result of this new audit policy is that systems audits are consuming a tremendous amount of time and resources for both DCAA and contractors. We can attest to that. Sadly however, taxpayers are not being well-served by these efforts. While DCAA has a very important mission in helping to ensure the propriety of costs charged to Government contracts, focusing on system audits is not an effective or efficient method for protecting the Government against unallowable costs.

To read DCAA's new audit guidance, go here. To read the attorney's full written testimony, go here.