New Business Systems Rules will Affect 20,000 Government Contractors

For those of you following this blog, you know that we have closely followed the development of the DoD's business system rules that require contractors to implement well documented and effective internal control systems for six systems including accounting, estimating, purchasing, EVMS, government property and material management. Contractors that fail to do so are faced with up to 10 percent withhold of their billings until the Government determines the deficiencies are fixed.

These new rules apply to contracts awarded after August 16, 2011, and there are now contracts out there with the clause.

Last week, we heard the first estimate of how many contractors will be impacted by the new rules. A DCMA (Defense Contract Management Agency) spokesperson stated that approximately 20,000 contractors under the jurisdiction of that Agency will eventually be subject to the rules. They must first be awarded a "triggering" contract.

A system must still be determined "materially deficient" before the Government begins withholding however. That means the deficiency must affect the ability of the Government to rely on the information provided by the systems.

Last October, DCMA "decertified" Lockheed Martin's EVMS system. They found the system deficient in 19 of 32 areas. Had the decertification occurred after August 16, the Government would have had a vehicle to withhold payments to Lockheed until those deficiencies were corrected.