Tuesday, March 6, 2012

New Requirement to "Continuously" Monitor Accounting System Adequacy

The Government considers cost-type contracts to be of higher risk than other types of contracts, notably commercial contracts and firm-fixed price. Back in 2009, President Obama set a goal of reducing high-risk contracts and Section 864 of the Duncan Hunter National Defense Authorization Act for fiscal year 2009 required amendments to FAR (Federal Acquisition Regulations) to address the use and management of cost-reimbursement contracts in several areas.

The areas of focus emanating from the Defense Authorization Act include:

  • Circumstances when cost-reimbursement contracts are appropriate.
  • Acquisition plan findings to support the selection of a cost-reimbursement contract
  • Acquisition resources necessary to award and manage a cost-reimbursement contract (it takes more Government resources to administer cost-type contracts than for other types of contracts).

An interim rule addressing these areas of focus became finalized in FAR last week. It primarily affects the way the Government chooses contract types and requires more documentation than under the old rules. There is one aspect however that contractors should take note of. A new paragraph was added at FAR 42.302(a)(12) to require that the contracting officer determine the continuing adequacy of the contractor's accounting system during the entire period of contract performance. Under the previous rules, there is no affirmative duty to require contracting officers to regularly monitor the adequacy of contractor accounting systems.

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