Tuesday, December 9, 2014

Watch your Contract Periods of Performance

During a recent incurred cost audit, DCAA (Defense Contract Audit Agency) took exception to about $300 thousand in costs charged to Government Contract Task Orders. These charges were booked to the Task Orders after the period of performance had ended. The auditor cited FAR 31.201-2(a)(4) as a basis for taking exception to the costs. That particular FAR provision states that a cost is allowable only when the cost complies with, among other things, the terms of the contract. The terms of the contract specified a specific period of performance so the auditor reasoned that any costs incurred outside the period of performance did not comply with contract terms.

In assessing the transactions, the auditor stated that they had "reviewed vendor invoices, purchase orders, payment records traced to (the contractor's) bank statements and conducted inquiries with (the contractor) regarding claimed expenses and documentation reviewed." Something did not ring true with that statement. If the auditor had really examined purchase orders, they would have noted that in all cases, the purchase orders were issued prior to the period of performance end. Although the vendor invoices were dated after period of performance, the binding obligation on the contractor was the date of the purchase order. Yet, no mention was made of these facts in the audit report.

The contracting officer, when shown the same information as was provided the auditor, immediately discarded the auditor's recommendations. So, other than wasting a lot of Government and contractor time, there was no cost impact to the contractor as a result of the audit finding.

The point we want to make here however is not that the Government was wrong, but to alert everyone to the potential that auditors will be comparing the dates of transactions to contact periods of performances. If you are aware of any such potential, we recommend that you contact your contracting officer, explain the situation, and obtain his/her approval before the auditors arrive.

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