Thursday, June 10, 2010

Resolving Disputes between the Auditor and Contracting Officer

Back on December 10th, we reported on guidance issued by DoD concerning the resolution of significant audit report recommendations when the contracting officer does not agree with the findings and recommendations of the auditor. To read that post, go here.
DCAA has now issued its own guidance on implementing the DoD policy. You can read that guidance in its entirety by going here. Essentially, this guidance deals with internal processes for elevating disagreements to higher and higher levels withing DoD, until it gets to an undersecretary of Defense. It also includes related correspondence from the Army, Navy, Air Force, DLA, and DCMA. These organizations, in turn, issued their own guidance to implement the DoD guidance.

A couple of notes:
  1. The guidance applies only to pricing proposals over $10 million where the contracting officer does not sustain at least 75% of the audit findings in a pre-negotiation objective. A pre-negotiation objective is documentation of what the Government hopes to achieve during negotiation. There is usually a difference between the negotiation objective and the final negotiated price. A contracting officer can easily include the audit findings in his/her negotiation objective with little hope or intent of trying to sustain the finding during negotiations, just to appease the auditor and get around this requirement (we've seen this happen).
  2. The policy does not apply to all of the other kinds of audits that DCAA performs; internal control reviews, incurred cost reviews, defective pricing, CAS compliance, progress payment reviews, paid voucher reviews, and a host of others. The policy is not clear with respect to terminations and claims since those are often referred to as "proposals".
  3. Elevating matters does not necessarily mean that a disagreement will be adjudicated fairly. Ultimately there is a final authority/decision maker and his/her decisions might be influenced by matters not evident to those with vested interests in the outcome (like, "I don't care what it cost, just get that plane up in the air").
  4. This could be a response to a problem that doesn't exist. Recalling our days in the Government, contracting officers were always looking for data that could help them achieve fair and reasonable contract pricing, be it from DCAA or technical reviews. We can't think of many cases where audit findings related to pricing proposal were not incorporated into the pre-negotiation objective. Significant disagreements between the auditor and contracting officer do arise in less quantitative audits like internal control reviews. Internal control reviews are very difficult to resolve because its not easy to show a nexus between the internal control deficiency and risk to the Government. For example, how does one show that failing to have a written policy to cover an event that has never occurred but could conceivably occur at some unspecified future point in time, constitute undue risk to the Government. Yet, that is the position that some auditors have taken. What's a contracting officer to do in that situation? Withhold funds? Disqualify the contractor from future contracts? Or, disposition the audit finding without taking action? 

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