Friday, April 2, 2010

Comments on DoD's Business Systems Proposal - Part V

All this week we have been discussing several of the comments that were submitted in response to DoD's proposal to withhold billings where contractors have deficient business systems. The systems covered by this proposal include the accounting, estimating, purchasing, earned value (EVMS), material management (MMAS), and Government Property. As a general rule, comments submitted by contractors and contractor trade organizations were opposed while comments submitted by Governmental Agencies favored the proposal. There was one response from a Member of Congress. That member opposes the proposal.

Today we will finish up with some of the issues/points raised by other respondents that we've gleaned by studying their submissions. We believe that if this proposal is implemented, defense contractors are going to experience some tough times. The cost of compliance will increase substantially and a diminished cash-flow will adversely affect a contractor's profitability and maybe even its ability to perform the contract. Another potential, but less tangible side effect from this proposal includes a reduced industrial base as some contractors might decide that the rewards of contracting with the Government are not worth the hassle.

Here are some of those gleanings.
  1. The proposed rule fails to consider materiality or give adequate consideration to seriousness. Thus, even minor, administrative issues that have no material impact on the Government's rights might lead to a withhold.
  2. The proposed rule offers no opportunity for contractor "due process". The rule fails to provide any machinery for disputing government findings.
  3. The proposed rule requires timely consideration by DCAA to corrective action plans and DCAA has been anything but timely for a number of years now. DoD is under resourced and not ready to implement this rule at this time.
  4. The proposed rule is punitive, arbitrary and capricious.
  5. The proposal will impose significant administrative burdens for contractor, and disproportionately affect small businesses.
  6. "Significant Deficiency" is not defined.
  7. The rule runs against the guiding principles of FAR Par 1.102 - to achieve efficient operations, the System must shift its focus from risk avoidance to one of risk management. The cost to the taxpayer of attempting to eliminate all risk is prohibitive.
  8. The proposed rule addresses symptoms rather than the root casuses of process problems.

If you missed our previous posts on this subject, you can read them here:
  • Part I - An Industry Trade Group
  • Part II - American Bar Association
  • Part III - The Dept. of Defense Inspector General
  • Part IV - The Committee on Wartime Contracting

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