Monday, August 23, 2010

AIA "Jumps the Shark"

The Aerospace Industries Association (AIA) issued a response last week to the Pentagon’s call for ideas to restore affordability and productivity in defense spending. Culled from among a larger listing of 97 initiatives that AIA published last July are three ideas that AIA believes can be accomplished within current DoD authorities, hence the title “Ways to Reduce Costs Immediately”.

These are not new ideas – we’ve seen them all before. The first of AIA’s three proposals is to employ better contracting methods by using more multi-year procurements, increasing the use of long term performance and outcome based product support contracts and expanding the definition of commercial products. The second idea is to cut down on the amount of cost or pricing data the contracting officer needs or requires in order to justify a fair and reasonable price, use pre-established direct and indirect forward pricing rates, eliminate serial reviews of contractor proposals prior to negotiation and reinvigorate the use of weighted guidelines to develop profit objectives.

The third idea is not new either but resonates with us because of frustrations we experienced when we were Government auditors. The oversight process makes multiple, sometimes contradictory, demands on contractors that drive up overhead costs. Agencies in the DoD are providing different interpretations of policy that cause contractors who have common systems, to make agency-specific adjustments. The lack of consistent policy interpretations result in determinations of inadequate proposals due to immaterial fact finding questions and adverse audit reports for contractor failure to supply unavailable information. Sometimes paper records are stored at a central storage facility and retrieval of the paper record cannot be made within the time frame demanded by the auditor. It is not clear to the contractor, or often to the government officials, where responsibility, accountability, and authority lie when conflicts take place. Such conflicts can delay contract award and drive up costs. DCAA has wrestled with this problem for many years – trying to apply consistent positions form a geographically dispersed work force.

AIA’s solution to this problem is for DoD to combine multi-agency compliance reviews, establish a single point DCMA/DCAA authority at major prime contractors to drive commonality and consistency, and base audits on materiality and risk. Its probably not realistic to believe that these ideas will save taxpayer dollars. The single point DCMA/DCAA authority will never fly as long as those Agencies remain separate. DCAA must remain independent to comply with GAGAS (Generally Accepted Government Auditing Standards). The idea that audits be based on materiality and risk is already integral to DCAA policy and Governmental auditing standards. The criticism of DCAA lately has hinged on the Agency taking too much risk. Finally, FAR and DFARS already specify lead agency status for multi-agency compliance reviews. For example, DCMA is lead agency for EVMS (earned value management) and CIPR (insurance/pension) reviews while DCAA is lead agency for ESS (estimating system) and CAS (cost accounting standards) reviews.

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