DCAA (Defense Contract Audit Agency) has a backlog of about 10,000 incurred cost submissions needing to be audited. Last year, it knocked off about 2,500 of those but another 2,500 were added during the year so the backlog is not dwindling. In a February 12th 2015 audit guidance memorandum, DCAA announced its plan to jettison another 1,000 potential submissions - those that are delinquent and for which the contracting officer has not granted an extension.
The guidance came with an attachment of 1,000 contractors (the list has now been removed from public access) for which auditors need to validate its accuracy. Once validated, the list goes to the respective contracting officers who will do one of two things; obtain an adequate incurred cost submission within 30 days or establish unilateral contract costs as authorized by FAR 42.703-2(c)(1) and FAR 42.705(c)(1).
Whether to apply a unilateral cost decrement and how much to apply are judgments at the discretion of the contracting officers, not DCAA. Upon request however, DCAA is prepared to offer support to assist contracting officers in figuring out a basis for unilateral determination. This would include information such as billing deficiencies, incurred cost audit experience, and other internal control information.
As a last resort (e.g. where no relevant historical information exists for a particular contractor), DCAA is recommending that the contracting officer apply a Agency-wide decrement factor to total contract costs. That factor currently sits at 16.2 percent. This percentage would completely wipe out the profit on most Government contracts and even though temporary (until delinquent contractors submit their claims), it would have potentially disastrous effects on contractor cash flows.
It is imperative then for contractors, when contacted by the contracting officer regarding delinquent incurred cost submissions, to prioritize the preparation and submission of incurred cost submissions.