Thursday, June 20, 2013

Proposed Expansion of DCAA's Subpoena Authority

Every year, the Department of Defense packages up a bunch of legislative proposals and sends them over to Congress for consideration and hopeful inclusion in the National Defense Authorization Act. Some make the bill, some don't. Some make it but are are almost unrecognizable in the final bill. For example, last year, one of DoD's proposals was to require contractors to give the auditors unfettered access to internal audit reports. This proposal proved to be very controversial and the provision that finally made it into law was so wattered down as to be inconsequential - it didn't require contractors to turn over internal audit reports - it merely required the auditors to document contractor responses to requests for internal audit reports.

So, with that background, we peruse DoD legislative proposals as they become available to look for issues and areas of concern for Government contractors. One of the proposals sent to the Legislature this year is for an expansion of DCAA's subpoena authority.

Currently, DCAA's subpoena authority, contained in 10 U.S.C. 2313 permits DCAA both access to and the authority to subpoena certified cost or pricing data, but it does not specifically provide similar authority for "data other than certified cost or pricing data" as defined in FAR 2.101. When a contracting officer determines that historical data is insufficient to determine the reasonableness of prices in fixed-price contract for commercial items, FAR 15.403-3 permits the Government to obtain "data other than certified cost or pricing data" to assist in making the determination. Contractors have been reluctant to provide this information. While the FAR allows contracting officers to request data, there is currently no authority to compel production of that data.

The legislative proposal submitted by DoD would amend 10 U.S.C. 2313 to provide DCAA (Defense Contract Audit Agency) the authority to evaluate data other than certified cost or pricing data and would expand DCAA subpoena authority to include such data.

In justifying this enhanced access, DoD reported that in the past 12 months, at least two major contractors have refused to provide the data requested. Because DCAA's subpoena authority includes only certified cost or pricing data, DCAA was unable to compel the production of data other than certified cost or pricing data to determine whether proposed price increases on commercial parts were fair and reasonable. As a result, the contracting officers were left with a decision to withhold award of the contract and develop a second source for a weapon system (impractical in most cases) or negotiate with less than optimal data.  It also significantly delayed the acquisition  process. Additionally, DoD noted that some contractors have also refused to provide data that substantiates sufficient commercial sales to support pricing based on the commercial sales price.

Senator Barry Goldwater said in 1958, "This bill and the foregoing remarks of the majority remind me of an old Arabian proverb. If the camel once gets his nose in the tent, his body will soon follow." DCAA has another proposal in the works that would expand its subpoena authority even more, by compelling contractors to turn over their internal audit reports.

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