Wednesday, February 16, 2011

DCMA and DCAA Cost Recovery Initiative

Last October, DCMA (Defense Contract Management Agency) and DCAA (Defense Contract Audit Agency) announced a joint Cost Recovery Initiative (CRI) to pursue a significant number of CAS cost impact issues requiring ACO dispositions and/or resolutions. The backlog of open CAS issues is significant by any measure. There are over 450 reportable CAS audits (meaning the audits are being tracked in someones database) waiting resolution and about 300 DCAA Form 1s (Notice of Costs Suspended and/or Disapproved) where the Government has reduced contractor billings.

DCMA and DCAA have now launched their joint agency CRI to proactively address these outstanding audit issues, making resolution of these issues one of their highest priorities. Most of these outstanding non-compliance issues were initiated by DCAA but require ACO action to resolve. When contractors make accounting changes or are found in noncompliance with a CAS standard, they are required by the terms of their contracts to prepare and submit a cost impact statement. When those cost impact statements are not submitted, the contracting officer has a difficult time assessing the materiality of the issues and ultimately resolving them.

Under the new initiative, where the contractor has not submitted a cost impact statement, DCMA will ask the DCAA to prepare a "rough order of magnitude" cost impact. The ROM is a high level estimate of the cost impact of the accounting change or noncompliant practice and would not be at the level of detail required of a contractor-prepared cost impact. The ROM will be used by the ACO to initiate a 10 percent withhold authorized by FAR Part 30. Although the ROM will be a good faith estimate based on available data, there is no expectation that the government will be "conservative" in its calculations. Additionally, it is only a stop-gap measure to protect the government's interest until the contractor prepares its own cost impact proposal.

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