Friday, November 25, 2011

Forward Pricing Rates

Last January, DoD issued a memo that discussed the realignment of work between DCMA (Defense Contract Management Agency) and DCAA (Defense Contract Audit Agency). You can read more about that memo here. In a follow-up memo issued November 16, 2011, DoD adds clarification to its policy regarding forward pricing rates.

Back in January, DoD shifted responsibility for establishing forward pricing rates (indirect rates used by contractors and the Government to negotiate contracts) from DCAA to DCMA. The initial wording caused some confusion however by permitting contracting officers to use DCAA forward pricing rate audit recommendations as a basis for indirect rate recommendations provided to contracting officers (e.g. why would DCAA have rate recommendations when it is no longer in the business of auditing indirect rates?).

The new guidance makes it very clear that contracting officers are to obtain their indirect rate recommendations directly from DCMA. If new information comes along that suggests the rate recommendations require modification, the contracting officer should coordinate with DCMA - not DCAA - as to the impact on indirect rates.

Forward pricing rates was once one of the core competencies of DCAA. Unfortunately, organizational paralysis set in and DCAA is no longer able to provide timely and responsive audits to support contract negotiations. If this trend continues, DCAA will soon be relegated to the "dustbin of history".

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