Thursday, July 26, 2012

New Business System Rules Affecting More Contractors than the Old Rules

The new DFARS business system rules that became effective last February apply to CAS covered contracts. There was a collective sigh of relief from non-CAS covered contractors when this threshold was announced. However these rules will apply to more contractors than did the old rules.

The new business system rules covering the accounting, estimating, purchasing, EVMS, MMAS, and property management essentially replace DCAA's old ICAPS (Internal Control Assessment Planning System). The ICAPS were performed at contractors with revenues from flexibly priced (e.g. CPFF, CPIF, CPAF, FPI, and T&M) contracts exceeding $100 million.

That $100 million ICAPS threshold has now dropped to $50 million and now includes fixed price contracts in addition to all of the contract types listed above. That lower threshold and the expanded base of contracts will subject many more contractors to rigorous internal control requirements than before.

We should caution non-CAS covered contractors that even though they may not be subject to the new DFARS business system rules, these rules are now the standard for measuring whether contractor's systems are adequate for Government contracting purposes. DCAA and DCMA will use these rules to measure whether systems are adequate. The only difference is that non-CAS covered contractors will not be subject to withholdings on billings.

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