DoD Cancels Acquisition Streamlining Contract Clause

Back in February 2017, a Presidential Executive Order (EO 13777) established a Federal policy to alleviate unnecessary regulatory burden on the American people. In response to that EO, the Defense Department established a Regulatory Reform Task Force to review and validate DoD regulations, including DFARS (DoD FAR Supplement). DoD established a subgroup within the DoD Regulatory Reform Task Force to specifically review DFARS provisions and clauses.

It is difficult to make regulatory changes even when everyone knows and realizes that a particular regulation is redundant or of dubious value. This is especially true when regulations are implementing a statutory requirement. The statute must be changed first and that involves Congress and the President.

So far, the DoD Regulatory Reform Task Force has been concentrating on DFARS provisions that are redundant or closely approximate requirements stated elsewhere. This is the case published this week where DoD is removing DFARS Clause 252.211-7000, Acquisition Streamlining. Now why would DoD want to remove a clause that promotes "acquisition streamlining"? Isn't acquisition streamlining a good thing? A noble goal?

Perhaps. But in this case, the contract clause places the burden on contractors. DFARS 252.211-7000, Acquisition Streamlining (now deleted) requires contractors to prepare acquisition streamlining recommendations in accordance with the performance work statement and submit them to the Government. This particular clause was added to implement a requirement of a DoD Directive (DoDD 5000.43) that has since been cancelled. Moreover, FAR (Federal Acquisition Regulations) 7.1, Acquisition Plans, already includes similar provision involving industry engagement as considerations to be made when preparing written acquisition plans. Since the implementing DoD Directive and FAR 7.1 addresses acquisition streamlining, DoD considered its version of the clause unnecessary and therefore cancelled it.

In cancelling the requirement, DoD announced that it will continue to encourage industry participation during the design and development of contract requirements and through other methods.

Defense Acquisition Streamlining and Transparency Act - Part 3

Last Friday and Monday, we discussed certain aspects of the proposed Defense Acquisition Streamlining and Transparency Act that seek to speed up the acquisition process by streamlining auditing processes that are "time consuming and low value" so that Government contract audit organizations such as DCAA (Defense Contract Audit Agency) will begin competing head to head with commercial organizations to perform incurred cost audits. If you missed those postings, you can go back and read Part 1 and Part 2.

Today we want to focus on another key provision of the proposed legislation - streamlining the way the Government buys goods. The Government is statutorily required to conduct market research, competition, and price comparisons prior to purchasing products. The resultant processes however are onerous and time consuming. Even for simple products, market research often entails issuing requests for information, while contracting and price comparisons can involve detailed requirements development and evaluation of in-depth proposals.

The proposed legislation would require the Department of Defense to buy commercial-off-the-shelf-items through the same marketplaces that businesses use to acquire goods; places such as Amazon.com or office depot or uLine. Marketplaces would be limited to those that are commonly used in the private sector; provide a dynamic selection of products and prices from numerous suppliers; and provide procurement oversight controls such as two-person approval for purchases.

The House Armed Services Committee (HASC) and its chairman, Mac Thornberry believe that this commercial proposal would allow off-the-shelf items to "radically" reduce costs and lower time to acquire commercial products.

There are a number of cautions introduced by the new legislation. For example, the marketplace cannot feature or prioritize a product of a supplier based on any compensation or fee paid to the online marketplace by the supplier that is exclusively for such featuring or prioritization on the on-line marketplace. Also, suppliers will need to be screened to ensure that they have not been suspended or debarred.

You can read the entire bill here. As we stated earlier, the intent of the HASC is to roll these provisions into the fiscal year 2018 NDAA (National Defense Authorization Act) so its got a long way to go before it becomes law, if it even survives. So far however, we have not heard any significant objections to this bill.

Defense Acquisition Streamlining and Transparency Act - Part 2

Last Friday, we brought you a provision of the Defense Acquisition Streamlining and Transparency Act that will require the Department of Defense to outsource at least 25 percent of the incurred costs audits to QPA (Qualified Private Auditors). This is going to put DCAA in a head-to-head competition with commercial auditors and it will be interesting to see how it all shakes out.

There are a couple of other provisions in the proposed legislation that impacts DCAA that we want to summarize.

Transparency in Audit Savings. The methodologies used by DCAA to calculate cost savings resulting from their audits and ROI (Return on Investment) are often suspect; primarily because they are self-serving, DCAA does not share the information, and there is no transparency or accountability. Last year the Agency claimed to have saved $3.6 billion for the taxpayers or $5.70 for every dollar the Agency spent. Yet those savings are based on a fair amount of judgment on the Agency's part but often accepted as fact.

The proposed Defense Acquisition Streamlining and Transparency Act would attempt to provide more transparency behind DCAA's numbers. The proposed legislation would revise reporting requirements of the Defense Contract Audit Agency (DCAA) to provide more clarity on the cost effectiveness of different types of audits. It would require DCAA to report separately for incurred cost, forward pricing, and other audits with regard to the number and dollar value of audits completed and pending, sustained questioned costs, and the costs of performing audits.

It strikes us as odd that an audit organization needs to justify its existence based on cost savings achieved or how many dollars were returned to the Treasury for each dollar expended. We know of no commercial audit firm that emulates such a practice. Can you imagine KPMG or any other national CPA firm advertising "Hire Us Because We Give the Highest ROI".

Peer Reviews by Commercial Auditor. One provisions of this proposed acquisition and streamlining act is a requirement that DCAA be peer reviewed by a commercial audit firm. Specifically, the Act provides that DCAA may issue unqualified audit findings for an incurred cost audit only if it is peer reviewed by a commercial auditor and passes such peer review. This might actually be good news for DCAA whose peer reviews are now conducted by the DoD Office of Inspector General (OIG) a program, we suspect, that is beset by political considerations rather than by objective criteria and objective reviewers. There is absolutely no question that DCAA audits are extremely detailed but does the Government require that level of detail? If you were going from home to work for the very first time, you might want to enter the destination into your GPS. But would you need to do so on the second day, the 10th day, the 30th day? At some point, someone's going to think you're dumber than a brick if you need to consult your GPS every time you go to work. Yet auditors are expected to drag out the same old audit program when they've done it a hundred times before. And, if they don't, the Agency gets written up for failing to comply with Generally Accepted Government Auditing Standards (GAGAS).

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.

Cost Accounting Standards - Proposed Revision to an Existing Exemption

Certain contracts are exempt from CAS (Cost Accounting Standards). There are ten general categories of exemptions found in 48 CFR 9903.201-1 including contracts awarded based on a sealed bidding process, commercial items, competitive awards and many others. Previously, we discussed the CAS Board's proposal to modify the (b)(15) exemption to include the word "certified" before the phrase cost or pricing data. This was to distinguish awards based on certified cost or pricing data from awards based on "other than cost or pricing data".

Yesterday, the CAS Board published a proposal to modify another exemption, the (b)(6) exemption which currently reads:

Firm fixed-priced, fixed-priced with economic price adjustments (provided that price adjustment is not based on actual costs incurred), time-and-materials, and labor-hour contracts and subcontracts for the acquisition of commercial items.

The proposed rule would eliminate the detailed listing of permissible contract and subcontract types and simply state:

Contracts and subcontracts for the acquisition of commercial items.

Over the years, the permissible contract types for the acquisition of commercial items has expanded. Statutes such as The Federal Acquisition Streamlining Act (FASA) of 1994, the Federal Acquisition Streamlining Act of 1994 (FARA) and the Services Acquisition Reform Act of 2003 (SARA) have added to the number of contract types that can be used for commercial item procurement. The CAS exemption listing permissible contract types is now too restrictive and has not kept pace with these and other statutes.

The current listing of all CAS exemptions can be found here.

Section 809 Panel Issues Report No. 2 - CAS Thresholds

We reported yesterday that the Section 809 Panel (the Advisory Panel on Streamlining and Codifying Acquisition Regulations) had just issued is second of three reports with recommendations on streamlining the acquisition process. Yesterday, we began our coverage of the report with the Panel's recommendations to significantly enhance the functionality of the Cost Accounting Standards Board (CASB). If you missed that post, you can go back and read it by clicking here.

The Panel made a second recommendation concerning Cost Accounting Standards. They have recommended that certain monetary thresholds be raised. Recently, as a result of the 2018 NDAA (National Defense Authorization Act), the CAS-covered contract threshold was significantly increased from $750 thousand to $2 million. The CAS-covered contract threshold is tied into the requirement for certified cost or pricing data so that is why the threshold increased. The increase became effective just a few days ago; July 1, 2018. The Panel recommended that the CAS be de-coupled from the TINA threshold and set at $35 million.The Panel also made increased threshold recommendations to the "trigger contract", the full-coverage, and the disclosure statement events.

Trigger Contract. The trigger contract threshold is now $7.5 million. CAS does not apply until a contractor receives a CAS-covered award of $7.5 million or more. Once that threshold is reached, all CAS-covered contracts subsequently awarded to that contractor are subject to CAS. The Panel recommends eliminating this threshold entirely since it would no longer be necessary with the CAS covered contract monetary threshold were raised to $25 million.

Full CAS Coverage. The current full CAS-coverage threshold is a CAS-covered contract of $50 million or more. Contracts below this threshold are subject to modified CAS-coverage (Standards 401, 402, 405, and 406). The Panel recommends increasing this threshold to $ 100 million.

Disclosure Statement. Presently, the threshold for requiring a disclosure statement is $50 million in total CAS-covered contracts. A disclosure statement is not required, however, for individual business segments of a contractor that have CAS-covered contracts that are valued at less than $10 million and represent less than 30 percent of sales. The Panel is proposing to increase this threshold to $100 million and also eliminate the $10 million / 30% exemption.

The Panel estimates that these increased threshold would remove about 10 percent of DoD procurement dollars from CAS coverage but would remove a significantly higher percentage of contractors out of CAS requirements.

"Eliminating Requirements" Study - Reduce Duplicative Efforts in Rate Reviews

Yesterday we began a series discussing the recently issued "Eliminating Requirements" report (as it has become known). If you missed Part 1, click here to begin your reading. As we mentioned, this series will be focusing on recommendations pertaining to contract auditing and management, the topic that garnered the most comments from industry. Yesterday we discussed contractor complaints about the FAR requirements for maintain original paper copies of scanned images for a period of one year. The report did not find the requirement onerous and is not seeking changes to the regulations.

Today we want to discuss a complaint raised by multiple contractors (recall that the 12 largest DoD contractors participated in the study) over the duplication of efforts by DCMA (Defense Contract Management Agency) and DCAA (Defense Contract Audit Agency) in reviewing/auditing FPR (Forward Pricing Rate) proposals. These contractors asserted that having both DCMA and DCAA review forward pricing rates is generally unnecessary since payments based on estimates are corrected when actuals become available.

The report authors submitted the contractor concerns to DCMA and  DCAA. Both Agencies noted the recent workload realignment policies that gave DCMA the single agency responsible for issuing all forward pricing rate recommendations for contractors where DCMA is the cognizant contract administration office. That should reduce duplicative effort. DCMA noted that forward pricing rates are used for more than just billing purposes. They are used to establish fair and reasonable cost determinations on fixed priced contracts and profit/fee considerations on all contracts.

DCMA noted that the contracting officer may need to request audit assistance from DCAA but if it has the capability necessary to perform the required analysis, it does not seek assistance from DCAA.

Nevertheless, both DCMA and DCAA agreed that additional (but unspecified) streamlining opportunities appear possible so with that admission, the report recommended that these opportunities be addressed by the Directors of DCMA and DCAA and be provided to DoD. Now both DCAA and DCMA are on the hook to conjure up some "opportunities for streamlining" that they can present to DoD.

Go to Part 3.

Defense Acquisition Streamlining and Transparency Act - Commercializing Contract Audits

On May 18th, 2017, Chairman Thornberry of the House Armed Services Committee (HASC) introduced The Defense Acquisition Streamlining and Transparency Act, a bill to (i) empower the Defense Department to use "e-commerce" to purchase commercial off-the-shelf items, (ii) reform the defense contract audit process and (iii) a number of other provisions. For purposes of this article, we want to focus on how the bill intends to reform the contract audit process. According to Thornberry,

Right now, the Defense Contract Audit Agency's audits of incurred costs are slow, time-consuming, and often generate little value to the taxpayer. In 2016, it took an average of 855 days to close out an incurred cost audit and these audits account for only a small amount of DCAA's reported savings to the government. In this proposal, materiality standards for incurred cost audits would be raised to avoid spending time and resources on low-value auditing. Acquisition officials would be able to choose either the Defense Contract Audit Agency or a qualified private auditor to conduct incurred cost audits, which would be required to be completed within one year.

You can read the entire 80 page bill, which will eventually be folded into the 2018 NDAA (National Defense Authorization Act) by clicking here.

The crux of the proposed legislation is that by the year 2020, twenty-five percent of all incurred cost audits now performed by DCAA (Defense Contract Audit Agency) must be performed by commercial auditors. To accomplish this, DCMA (Defense Contract Management Agency) will enter into an ID/IQ (Indefinite Delivery/Indefinite Quantity) contract with two or more private CPA firms (called "Qualified Private Auditors" or QPA in the legislation). Then, DCMA can choose either DCAA or a QPA to audit incurred costs of a particular contractor. The legislation would also prohibit DCAA from further auditing or reviewing audits performed by QPAs.

One oft-heard criticisms of DCAA is that auditors frequently get bogged down by minutiae - spending a lot of hours on costs that are immaterial and have no significant impact on Government spending. The proposed legislation specifies a materiality standard for incurred cost audits based on private sector norms for both DCAA and QPAs. It is not clear to us how the minimum materiality standards specified in the proposed legislation is supposed to work; whether they represent reporting standards or risk assessment thresholds. We'll have to wait for additional clarification on this.

Finally, the proposed legislation requires that incurred cost audits be completed within one year of receipt of an adequate incurred cost submission. If not, the submission will be accepted in their entirety without any form of audit. That's not much different than what DCAA does right now - administratively closing out low-risk contractors without audit.

Lest you think that commercializing the contract audit process represents undue risk to the taxpayer, consider that other non-Defense agencies - notably the Department of Energy - have been successfully using private CPA firms to perform contract audits for several years and have had no problems relying on the results of their audits. The HASC (House Armed Services Committee) noted that commercial auditors used by other Federal agencies cost less and are completed sooner. Well, there is no doubt that commercial auditors complete their incurred cost audits sooner but its not a given that it cost less.

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.

DCAA Under the Microscope Again

The Senate has finished its version of the Fiscal Year 2016 National Defense Authorization Act (NDAA) and, as usual and as expected, there are some differences from the House version. One of those differences impacts the Defense Contract Audit Agency (DCAA) and, if passed, will result in more of DCAA's work being performed by other groups.  The Senate Committee on Armed Services made the following statement:

The committee recommends a provision that would authorize the Defense Contract Audit Agency (DCAA) to provide outside audit support to non-Defense Agencies upon certification that the backlog for incurred cost audits is less than 12 months of incurred cost inventory. The committee understands that DCAA has made progress in reducing its incurred cost audit backlog but this has come at the expense of a reduction in the number of audits and increased backlogs in other areas of its responsibilities. The committee believes that DCAA management should not be distracted by directing and managing the audit responsibilities of other agencies until its own house is completely in order. The provision would require the Secretary of Defense to use up to 5 percent of the auditing staff of the Office of the Inspector General of the Department of Defense and the service audit agencies and, if necessary, augmented by private audit firms to help address DCAA's audit backlog. The provision would also require the Secretary to review the oversight and audit structure of the Department of Defense with the goal of improving productivity, avoiding duplicative program and contract audits, and streamlining oversight reviews.

The actual bill contains the following provisions:

Beginning October 1, 2016, DCAA may provide audit support for non-Defense Agencies once the Secretary of Defense certifies that the backlog for incurred cost audits is less than 12 months of incurred cost inventory.

 Adjustment in funding for reimbursements from non-Defense agencies. The amount appropriated and otherwise available to DCAA for a fiscal year beginning after September 30, 2016 shall be reduced by an amount equivalent to any reimbursements received by the Agency from non-Defense agencies for support provided in violation of the limitation under paragraph (1)

Use of Third Party Audits. The secretary of Defense shall use up to 5 percent of the auditing staff of the service audit agencies augmented by private sector auditors to help eliminate the audit backlog in incurred cost, pre-award accounting systems audits and to reduce the time to complete pre-award audits.

Use of Inspector General Auditing Staff - The Office of the Inspector General of the DoD shall make available 5 percent of its auditing staff to DCAA to help eliminate the audit backlog in incurred cost,  pre-award accounting systems audits and to reduce the time to complete pre-award audits.

DCAA's annual report to Congress will be expanded to include two new topics;

1. A description of actions taken to ensure alignment of policies and practices across the DCAA regional organizations, offices, and individual auditors
2. A description of outreach actions toward industry to promote more effective use of audit resources

Acquisition Oversight and Audits - The Secretary of Defense shall review the oversight and audit structure of the Department of Defense with the goal of enhancing the productivity of oversight and program and contract auditing to avoid duplicative audits and the streamlining of oversight reviews. The Secretary shall take all necessary measures to streamline oversight reviews and avoid duplicative audits and make recommendation for any necessary changes in law

Report - Not later than one year after the date of the enactment of this Act, the Secretary of Defense shall submit to the congressional defense committees a report on actions taken to avoid duplicative audits and streamline oversight reviews. The report will include:

1. A description of actions taken to avoid duplicative audits and streamline oversight reviews based on the review conducted.
2. A comparison of commercial industry accounting practices, including requirements under the Sarbanes-Oxley Act, with the Cost Accounting Standards (CAS) to determine if some portions of CAS compliance can be met through such practices or requirements.
3. A description of standards of materiality used by DCAA and the DoD-IG for defense contract audits (this will be very interesting)
4. An estimate of average delay and range of delays in contract awards due to time necessary for DCAA to complete pre-award audits.

NDAA 2020 - Study the Applicability of Section 809 Panel Recommendations to Energy Department

This is another installment of our coverage of the 2020 NDAA (National Defense Authorization Act). The Senate and House have passed their respective versions of the 2020 NDAA and differences in the two bills are now being reconciled in conference committee. Although there is no certainty that the provisions we have been highlighting, including this one, will make it to the President's desk, they do not seem overly partisan so we think they will likely make it to the final legislation.

A lot of the provisions in both the Senate and House bills call for more studies including the following study to determine whether the recommendations from the Section 809 committee can be applied to the Department of Energy.

The Section 809 Panel was established under the 2016 NDAA to study and make recommendations on streamlining and codifying acquisition regulations for the Department of Defense. The Panel issued three reports containing recommendations related to improving the defense acquisition process. While these recommendations were not aimed at the Department of Energy (DOE), the Panel believed that DOE faces a number of the same acquisition challenges. Therefore, the Senate included a provision in the 2020 NDAA that directs the Government Accountability Office to assess the application of some of the recommendations.

First, GAO is to review issues affecting DOE's acquisition workforce. Specifically, the Senate is interested in DOE's workforce planning efforts, particularly related to (i) how it determines the number of acquisition professionals needed and the skills and training required for those positions, (ii) whether DOE's acquisition professionals attain the needed training and skills, (iii) any challenges in recruitment and retention of DOE's acquisition workforce and (iv) any systemic challenges for those professionals in performing their acquisition oversight responsibilities.

Second, the Senate finds the portfolio management framework recommended by the Section 809 Panel compelling and therefore directs GAO to study whether it can be ported over to DOE.

Finally, the Section 809 Panel provided examples of essential audit and non-audit services provided by DoD agencies across the contract life-cycle. Most of these services are performed pursuant to FAR requirements which are generally applicable to all agencies, including DOE. The Senate directs GAO to review how DOE obtains the required audit and non-audit services and whether there are any opportunities for improvement or efficiency in how DOE obtains these services.

Plans for Reducing Acquisition Lead Time

Last October, the Secretary of Defense issued a memo identifying three lines of effort he felt necessary to maintain DoD's position as a preeminent fighting force. The third of those lines of effort focused on bringing business reforms, including streamlining of the requirements, identification, and acquisition processes to the Department.

One such practice that significantly contributes to the time-frame between price agreement and contract award relates to the contractor's submission of additional cost or pricing data (often referred to as "sweep data") concurrently with or after the submission of the Certificate of Current Cost or Pricing Data subsequent to price agreement.

Delays associated with contractor efforts to collect and submit cost or pricing data which should have been, but were not, provided to the Contracting Officer in a timely manner prior to agreement on price unnecessarily increases acquisition lead time both by delaying submission of the Certificate of Current Cost or Pricing Data, and by requiring the Contracting Officer to review the "sweep" data, assess the impact on the negotiated price, and come to an agreement with the contractor on the impact that the additional data had on the negotiated price.

There is not statutory or regulatory requirement for contractors to perform a cost and pricing data "sweep" after the date of agreement on price. The requirement is to submit the data prior to the conclusion of price negotiations. Contractors' desire to perform "sweeps" is to forestall subsequent defective pricing findings by a contract auditor. However, it could also be indicative of estimating system deficiencies where corrective action is needed.

DFARS (DoD FAR Supplement) 252.215-7002 defines an acceptable estimating system one that provides procedures to update cost estimates and notify the Contracting Officer in a timely manner throughout the negotiation process. It does not extend the requirement beyond the negotiation process.

Effective immediately, the DoD has instituted a policy that requires contractors to execute the Certificate of Current Cost or Pricing Data as soon as practicable, but no later than five business days after the date of agreement on price.

But what about sweep data submitted between price agreement and certificate date? Won't that lead to delays while contracting officers take time to consider its impact on price? Good question and here's DoD's guidance.

Contracting officers shall defer consideration of the impact of any cost or pricing data submitted by a contractor after price agreement is reached until after award of the contract action in order to avoid delays in the awarding of the contract. Any cost or pricing data submitted after price agreement shall be reviewed and dispositioned after award of the contract action to establish whether it is rendered that the certified cost or pricing data submitted up to the point of price agreement was defective, and to determine whether the Government is entitled to a price adjustment.

To avoid the consequences of finding cost or pricing data after the date of agreement on price, Contractors should focus on the adequacy of their estimating systems. 

The full policy memo can be read here.

Incurred Cost Submissions using Blended Rates but No Advance Agreement Will Get Bounced

Back in April, we published a four-part series on the use of blended labor rates to implement the new $487 thousand compensation cap that applies to all employees charging to Government contracts awarded after June 24, 2014. For a comprehensive look at the blending methodology, refer to that series Part 1, Part 2, Part 3, and Part 4. The Department of Defense came up with the blending methodology as a means of streamlining implementation of the lowered compensation cap while there is a mix of contracts under the old and the new caps. As a prerequisite to using a blended approach, a contractor must enter into an advance agreement with the ACO (Administrative Contracting Officer). The advance agreement includes detailed methodologies to calculate blended rates - which differ for incurred cost proposals and for forward pricing proposals.

DCAA (Defense Contract Audit Agency) is the Government organization tasked with determining whether contractors' annual incurred cost submissions (commonly referred to as ICE) are adequate. (By the way, if you're not familiar with the incurred cost adequacy checklist, download it here). Now that contractors have begun submitting their fiscal year/calendar year 2015 incurred cost proposals, DCAA has noticed that many of them are using a blended approach to cap compensation costs. That would be fine except the Agency is also noting that some of them have been submitted without the requisite Advance Agreement.

DCAA is now instructing its auditors to reject any incurred cost proposal that uses blended rates but lacks an advance agreement:

When the proposal is determined adequate and there is no executed advance agreement, the audit team should return the proposal and require the contractor to resubmit the proposal only after executing an advance agreement with the ACO.

The guidance includes some other steps such as coordination with the contractor and/or the ACO to determine whether an advance agreement is in process and if its issuance is imminent. In that case, the auditor is allowed to wait a little while before rejecting the submission.

Rejected incurred cost submissions run the risk of becoming delinquent. If you are nearing that six-month after year-end due date, you need to request an extension of time from the ACO.

GAO to Study DOE's Acquisition Workforce and Audit Needs

The Senate Committee on Armed Services released a report to accompany its 2018 NDAA (National Defense Authorization Act). The Senate and the House versions of the NDAA are currently in conference committee to resolve differences before going to a vote by the full chambers. The Committee report offers some insight into why the Senate added various provisions to the NDAA. One of the provisions called out in the NDAA (Senate version) is for the GAO (Government Accountability Office) to review the applicability of the Section 809 Panel to the Department of Energy. We last discussed this back in July (see NDAA 2020 - Study the Applicability of Section 809 Panel Recommendations to Energy Department) so today's blog represents a refresher and update to what we wrote previously.

Section 809 of the 2016 NDAA required DoD to establish an advisory panel on streamlining and codifying acquisition regulations for the Department of Defense. Between January 2018 and January 2019, the Section 809 Panel (as it came to be called) issued several reports containing recommendations related to improving the defense acquisition process. While these recommendations were not aimed at the Energy Department, the Senate Armed Services Committee believes that DOE face a number of the same acquisition challenges as the DOD. That is why the Committee inserted the requirement for GAO to assess the application of a subset of these recommendations to DOE.

If enacted, the GAO will be directed to review issues affecting DOE's acquisition workforce. Specifically, the Armed Services Committee is interested in DOE's workforce planning efforts related to (i) how DOE determines the number of acquisition professionals needed and the skills and training required for those positions, (ii) whether DOE's acquisition professionals attain the needed training and skills, (iii) any challenges in recruitment and retention of DOE's acquisition workforce, and (iv) any systemic challenges for those professionals in performing their acquisition oversight responsibilities.

Volume 1 of the Section 809 Panel's final report provides examples of essential audit and non-audit services provided by DoD agencies across the contract life-cycle. Most of these services are performed pursuant to requirements in FAR (Federal Acquisition Regulation), which are generally applicable to all agencies, including the DOE. The Senate Armed Services Committee wants GAO to review how the DOE obtains the required audit and non-audit services and whether there are opportunities for improvement or efficiency in how the DOE obtains these services. Up until six or so years ago, DOE acquired its contract audit services through DCAA (Defense Contract Audit Agency) after which it began contracting with commercial accounting firms for the service. Whether the switch was beneficial to the Government is a question that the GAO will try to assess.

Customary Commercial Practices

The Federal Acquisition Streamlining Act of 1994 (FASA) established a preference and specific requirements for acquiring commercial items that meet an agency's needs. FAR requires market research by the acquiring agency to address, among other things, customary practices regarding the provision of the commercial item. Consistent with this approach, FAR bars the tailoring of solicitations for commercial items in a manner inconsistent with customary commercial practice unless a waiver is obtained. If a waiver is requested, it must describe the customary commercial practice found in the marketplace, support the need to include a term or condition that is inconsistent with that practice, and include a determination that the use of the customary commercial practice is inconsistent with the needs of the Government. That may be a lot of hoops to jump through but the purpose is to encourage acquisitions of commercial items when and where possible.

A recent bid protest decision passed down from the Comptroller General's office (i.e the GAO) sheds some insight on how the Government conducts its market research and determines customary commercial practices.

The Army issued a solicitation for waste management services (i.e. garbage pickup) at Fort Polk Louisiana. Offerors were required to submit fixed rices on a per-ton basis. Before the contract was awarded, one of the bidders protested on the grounds that the requirement to propose fixed prices on a per-ton basis was inconsistent with commercial practices.The Army agreed to take corrective action and so this appeal was dropped.

However, the Army's corrective action did not change the solicitation requirements for fixed prices on a per-ton basis. It set out to demonstrate that garbage pick-up on a per-ton basis was a commercial practice. And so, the offeror protested once again.

The offeror maintained that customary commercial practices for regular trash collection schedules are not priced on a per-ton basis since contractors' costs are driven by the number and frequency and distance between stops on a collection schedule. The costs a contractor incurs are essentially the same whether the refuse containers are full, partially full, or empty.

The Army responded that it had performed market research to justify its per-ton pricing. It reviewed other Army refuse contracts, requested feedback from industry in "Sources Sought Notice (SSN) and contacted a sales representative from a company in New York.

The Comptroller General didn't buy the Army's logic. It stated that the Army's market research failed to reasonably support its conclusion that pricing for refuse contracts on a per-ton basis reflects customary commercial practice.

First, it was unreasonable for the Army to rely on other Government refuse contracts as a basis for establishing customary commercial practice since contracts with the federal government are not generally considered to be part of the commercial marketplace.

With respect to the SSN (Sources Sought Notice), the Army received seven responses. Four stated that pricing should be on a monthly basis and three did not comment. The Army's reliance on three of the respondents who did not comment on this issue provides no basis for the Army to conclude that the solicitation's pricing terms were consistent with customary commercial priactice.

Finally, contacting a trash collector in another state did not provide an adequate basis for concluding that the price-per-ton approach constituted customary commercial practice. The record did not contain or even reference any particular commercial refuse contract to which the New York trash company was a party. Nor did the record contain any documentation from the company representative or support for the "expertise and knowledge" of the sales representative.

The Army was trying hard to award the contract to the incumbent contractor but was foiled, at least for the time being.

You can read the entire decision 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.

Streamlining the Billing Process - Part I

The blog posts for today and tomorrow come courtesy of Jean Carr. Jean Carr graduated from Notre Dame de Namur University in Belmont, CA with a Bachelor of Science in Business Administration and worked many years for the Defense Contract Audit Agency in the San Francisco Bay Area in a variety of audit and administrative positions before retiring in 2009. Among her many duties and responsibilities was to ensure the accuracy, completeness, and propriety of billings (public vouchers) submitted to the Government through WAWF (Wide Area Work Flow) for payment. Many contractors not exercising due care with their billings have had unforgettable encounters with Ms. Carr. Jean now consults with Bay Area contractors endeavoring to improve their billing processes and internal controls. She can be reached through us at 866-849-4887, Extension 1.

And now, here's Jean:

The biggest mistake for a contractor is to believe that whatever they send to DCAA is correct and will be understood and paid. Most DCAA voucher processors could care less if a contractor gets paid or not, much less get paid timely. It's not their responsiblity. If the processor has no personal interest in your company, you’re low on the “totem-pole.” Get to know your processor and develop a positive relationship with him/her. Flattery couldn’t hurt. Why? Because your processor will be more forthcoming with information that (although grudgingly given) you need to get your Public Vouchers processed. Further, if you have a good relationship, the processor will often warn you of impeding payment disaster (i.e., no receipt of billing requests, adjustment voucher received, contract period of performance is almost over or funding limit is imminent.)

Don't expect voucher processors to understand as much as you do. Most voucher processors in DCAA's Western Region are clerical personnel and don’t know what “Fringe” is; even though they get fringe benefits in their paychecks. And base? They think it’s like a BIG standup violin that men play in Jazz trios.

Tomorrow, Jean will continue with her list of the ten most common mistakes that contractors make when submitting payment requests.

Government Loses Another Appeal Based on Statute of Limitations

The Government has lost a number of notable appeals lately because of the six year statute of limitations. The latest is a case involving Raytheon and Cost Accounting Standards. In a case decided on April 22, 2013 but apparently just published, the ASBCA (Armed Services Board of Contract Appeals) ruled that the Government's claims against Raytheon for increased costs resulting from cost accounting practice changes were beyond the statute of limitations.

The six-year statute of limitations was a provision included in the Federal Acquisition Streamlining Act of 1994. It requires each claim by a contractor against the Federal Government relating to a contract and each claim by the Federal Government against a contractor relating to a contract shall be submitted with 6 years after the accrual of the claim. It works both ways, Government claims against the contractor and contractor claims against the Government.

FAR 33.201 defines the "accrual of the claim" as

The date when all events, that fix the alleged liability of either the Government or the contractor and permit assertion of the claim where known or should have been known. For liability to be fixed, some injury must have occurred. However, monetary damages need not have been incurred.

In the latest Raytheon case, the Government's claims arose for cost accounting changes that the contractor made in 2004 and 2005. Raytheon notified the Government of the pending changes in 2004 and also notified the Government that the accounting changes would result in increased costs to the Government.

In 2011, the contracting officer (DCMA in this case) issued final decisions which demanded that Raytheon refund the Government for increased costs that resulted from the accounting changes. Raytheon appealed on the basis that the Government's claim was beyond six years from the "accrual of the claim".

Raytheon's position was based on the date that it notified the Government of the accounting practice changes and the "potential" for there to be increased costs. The Government argued that Raytheon did not provide "auditable" cost impacts until much later (and within the statute of limitations).

The ASBCA sided with Raytheon. The Board stated that the initial notification was sufficient to trigger the statute of limitations. It stated:

Claim accrual does not depend on the degree of detail provided, whether the contractor revises the calculations later, or whether the contractor characterizes the impact as "immaterial". It is enough that the government knows, or has reason to know ...

Streamlining the Billing Process - Part II

The blog posts from yesterday and today come courtesy of Jean Carr. Jean worked many years for the Defense Contract Audit Agency in the San Francisco Bay Area. Her responsibilities included reviews of public vouchers to ensure the accuracy, completeness, and propriety of billings (public vouchers) submitted to the Government through WAWF (Wide Area Work Flow). Many contractors, failing to exercise due care with their billings have had unforgettable encounters with Ms. Carr. Jean now consults with Bay Area contractors to help them improve their billing processes and internal controls. She can be reached through us at 866-849-4887, Extension 1. If you missed Part I, go back and read it first.

Now, for ten common mistakes made by contractors when submitting their vouchers:

 

1. Using the wrong DCAA DoDACC code. Using the wrong DoDACC code will send the billing to the wrong DCAA office. When that happens, the DCAA office will simply reject the billing and leave it up to the contractor to figure out the correct DoDACC code. Prior to submitting your first voucher under each new contract, I suggest you call the DCAA office that you believe has cognizance of your company. Talk to the person who reviews your public vouchers for adequacy and verify that he/she HAS the contract. (10 percent of the time, DCAA doesn’t have a copy of the contract. 15 percent of the thime the PCO made one of two errors: he/she put the wrong billing DCAA code into the contract or left out the billing requirements (such as, the correct FAR references). Since the DCAA processor is not as committed to getting you paid as you are in getting paid, I suggest that you be proactive with the PCO, ACO and DCAA and do whatever it takes (modifications, explanations in the PV, etc.) to ensure the correct DoDACC codes.
2.  Submitting vouchers out of numerical sequence.
3. Billing indirect costs based on provisional billing rates that have not had prior DCAA approval (THIS IS A BIG ONE).
4. Using expired billing rates (i.e. applying last year's rates to this year's costs).
5. Failing to submit a request, along with supporting documentation, for new interim billing rates or for temporary adjustment rates (final billing rates are used after DCAA completes its audit of your incurred cost submission and there has been a formal rate agreement. 
6. Mathematical errors. For example
• Last cum plus new charges do not equal new cum
• Backing into the total funded amount rather than showing the actual incurred cost and subtracting the amount in excess of the funding limit.
• Rate times Base does not equal the amount shown on the public voucher.
7. Billing costs in excess of the funded amount of the contract.
8. Billing fee in excess of contractual limitations(some contracts cap fee at 85% until final billing).
9. If the contract is costed and funded by CLIN/SLIN (Contract Line Item Numbers/Sub Line Item Numbers), the contractor must bill by the CLIN/SLIN. A PCO once complained to me: “I went to all the trouble to set this contract up by line item and funded it by line item and then you let the contractor bill however they wanted to?” Oh, and watch that you don’t go over the period of performance on each individual CLIN?SLIN. 
10. Submitting incomplete, incorrect, or inadequate detail to support the public voucher.

The Government's Shoddy Market Research Practices

The Government says that it is continuously seeking ways to increase the participation of small businesses in Government contracting (how about streamlining the GSA Schedule process, for starters?). One of Defense's BBP (Better Buying Power) 3.0 initiatives that we discussed last April is to compile a new set of tools that will enhance market research:

The premise here in this initiative is that there is a lot of small businesses out there that could be solicited for work if only Government acquisition personnel had better market research tools. With the proper "tools", the Government could perform market research and ferret out those small businesses that are disengaged or not aware of Government contracting opportunities. With the proper "tools", the Government's acquisition corps could find small businesses to produce "innovative solutions for the Department". So, if some company has a better, more efficient, or more cost effective method of providing goods and services, the Government's market research activities will find them and bring them under contract.

One use of agencies market research is to determine whether there are sufficient number of small businesses available to meet an agency's needs and if so, the solicitation can be set aside (reserved) for small businesses. Sometimes however agencies get rather sloppy in their market research endeavors. Consider a recent GAO bid protest that ruled the VA's (Veteran's Administration) market research did not support a conclusion that at least two small businesses could meet the agency's needs.

The VA needed radiopharmaceuticals so it searched two databases for small businesses operating under a certain NAICS code. It found some and assumed that they were qualified and therefore set aside the solicitation for small businesses only. However, the particular NAICS code included a large array of different types of businesses manufacturing all types of pharmaceuticals, including cold medicines and lip balms.

One company, a competitor that couldn't bid because it wasn't a small business, challenged the adequacy and sufficiency of the VA's market analysis. The GAO sustained the protest, finding that the VA had not adequately focused its market research on radiopharmaceuticals manufacturers, and that the agency did not even consider whether the companies it identified could be considered manufacturers or simply suppliers of the product. Further, there was not indication in the market research report, or otherwise, that any of the identified companies have the required nuclear pharmacy licenses to perform under the contract.

You can read the entire GAO Bid Protest decision here.