Wednesday, March 31, 2010

Comments on DoD's Business Systems Proposal - Part III

Over the past few days, we have been summarizing some of the comments that were submitted in response to DoD's proposed revision to the DoD FAR Supplement to withhold payments from contractors whose business systems have been found inadequate. Up to now, we have summarized comments from two organizations that are opposed to the essence and substance of the proposal. To read Parts I and II, go here and here.

Today we are going to look at a response that believes the proposed regulation do not go far enough. Naturally, the comments are from a Governmental Agency - the DoD Inspector General (DoD-IG). The DoD-IG "generally" believes that the proposed regulations will improve the effectiveness of DoD oversight of contractor business systems. At the same time, they made two recommendations that essentially make things worse from a contractor's perspective.

The proposed regulations require that the ACO withdraw a finding of noncompliance when the contractor has "substantially corrected" the system deficiencies. The DoD-IG proposes to change "substantially corrected" to "completely corrected". This might not seem to be much of a distinction on first glance. However, the tem "substantially" implies that the ACO can make a subjective assessment of the contractor's overall progress toward correcting the cited deficiencies and if progress is being made and is following the approved corrective action plan, the contracting officer can release the billings. On the other hand, the term "completely" carries the connotation that no funds may be released until the deficiency is completely corrected.

The proposed regulations include a provision that allows the ACO to reduce the withhold from 10 to 5 percent if the contractor has submitted an acceptable corrective action plan within 45 days of receipt of a notice of the ACO's intent to withhold, but has not completely corrected the identified deficiencies. The DoD-IG believes that the reduction should be granted only to small business concerns. The DoD-IG reasons that "contractors other than small business concerns have the experience and the capability to correct system deficiencies. Reducing the amount withheld to five percent will lessen the motivation of a large business to correct their deficiencies". This is a ridiculous statement. Is the DoD-IG saying that small business concerns do not have the experience and capability to correct system deficiencies? If so, how could a small business ever comply with any acquisition regulation?

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