Contracting officers make their unilateral determinations based on advice from the contract auditor (usually DCAA). The basis for the auditor's recommendation depends upon whether there is relevant historical data available for the particular contractor. Where relevant historical data is available, the auditor will develop the rates. However, as a practical matter, this almost never happens because the definition of "recent, relevant historical data" is tough to meet. Recent, relevant historical data exists when all of the following criteria are met:
- The prior year has been audited (almost never occurs)
- All submissions received have been audited and settled (almost never occurs)
- The indirect cost pool and base data for the delinquent year is readily available in the contractor's books and records.
- There have been no significant changes in the contractor's business base from the last year audited.
- There have been no significant reorganization of the contractor since the last year audited.
Where recent, relevant historical data does not exist, the auditor is directed to Plan B and this is where the auditor usually camps. When a contractor is more than six months delinquent, the auditor is directed by guidance to recommend the ACO apply a 20 percent decrement factor to total contract costs, both direct and indirect, for any physically completed contract and all active contracts. This is quite punitive and would adversely affect most contractors. Obviously, contractors should not let things get this far.