Wednesday, December 26, 2012

What are "CD" Contracts and What Are the Risks?

Contract Definition (CD) contracts are the kind that are awarded to multiple contractors who will ultimately compete for a major follow-on prime contract. They are usually short-duration contracts. Most of the time they are fixed-price.

Upon completion, the procurement activity (contracting officer) will use the results delivered under the CD contracts to help define exactly what it wants in the prime contract. After that determination, it will then issue an informative RFP.

The Government (specifically DCAA or Defense Contract Audit Agency) considers these type of contracts to be "risky" in terms of the potential for labor mischarging. Their audit guidance in CAM (Contract Audit Manual) 6-404(b)(8) states the following:

Since the contractor's performance on the CD contract will have a direct bearing on its chance of winning the prime, there may be a tendency to spend more than the established contract value. Therefore CD contracts are highly susceptible to labor mischarging and the auditor should evaluate to make sure all allocable effort is being charged.

Similarly, DCAA's audit program for labor floorchecks (where the Agency conducts unannounced interviews of contractor employees) provides for the following:

Identify all CD contracts. These contracts are high-risk contracts and, therefore, should be evaluated to make sure all allocable effort is being charged.

With these risk factors in mind, the auditors will specifically target any CD contracts to ensure that contractors are not off-loading some of the effort onto other direct or indirect projects/contracts.

No comments:

Post a Comment