Monday, April 14, 2014

Billing Withholds - Now We're Talking About Real Money

We've written a lot about DoD's business system rules that were put into place a couple of years ago - rules that define the attributes for what constitutes adequate business systems and provides for billing withholds when those contractor systems do not measure up.

The six business systems include: accounting, estimating, purchasing, EVMS (earned value management) MMAS (material management and accounting), and Government property management.

In a hearing last week of the Senate Armed Services Committee, the Air Force disclosed that it had withheld $25.7 million through February 2014 (or five percent of payments) to Pratt & Whitney for the jet engines it is building the F-35 (Joint Strike Fighter) program because it failed to meet the criteria for an adequate EVMS system. This money, which will be held back by DCMA (Defense Contract Management Agency) until Pratt and Whitney fixes their internal business system used to track cost and schedule performance.

Pratt and Whitney reported that it had received approval from DCMA on 95 percent of its corrective action plans and expects to receive approval for all corrective action plans "soon". At that time, presumably, DCMA will release the withhold and Pratt and Whitney will get its money back.

We don't know the extent to which the Government is withholding funds for inadequate business systems. As far as we know, this information is not made public. Its only at Congressional hearings such as this one where we get a peak at how the system is working. Twenty-five million is a lot of money, no matter how deep a company's pockets are. A company relying on payments for its working capital will need to find other sources for that capital when the Government withholds funds. Those other sources will cost the company money.

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