Tuesday, July 1, 2014

The Government is Unilaterally Determining Final Indirect Rates

We recently saw our very first case where a contracting officer applied a 20 percent decrement factor to a contractor's final G&A rate, called it a final decision, demanded a significant refund, and informed the contractor of its appeal rights to the Armed Services Board of Contract Appeals.

What precipitated the action? In late 2013, the contractor informed the Government that it was going out of business and wasn't sure at that time, where its accounting records would be sent? Since DCAA (Defense Contract Audit Agency) had not commenced its audits of 2005 and 2006 costs, the contracting officer was well aware of the impending six year statute of limitations that was about to kick in on those submissions. Not wanting to lose the opportunity to recover monies should an audit disclose unallowable costs, the contracting officer simply made a demand for "potential" disallowances.

This is an interesting twist. The contractors annual incurred cost submissions were determined to be adequate by DCAA - DCAA just never got around to conducting an audit in a reasonable amount of time. The contractor was not denying access to the auditors, it had simply ceased operations and was in the process of deciding where to send the records so that they could be audited.

Stay tuned on this one - its headed for litigation.

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