Friday, May 29, 2015

Use GSA's New Website to Search for Hourly Labor Rates

GSA (General Services Administration) has set up a new website called CALC (Contract Awarded Labor Category). Its really for the Government acquisition corps but it is interesting for contractors as well. One thing it provides is an easy way for contractors to check their competition.

CALC was set up to allow acquisition folks the ability to conduct market research on professional service labor categories more quickly and easily. It is also intended to take the guesswork out of cost estimations. All results shown are actual awarded hourly rates from GSA services schedules. The idea behind CALC is to provide another tool to help government acquisition make more informed decisions.

The first thing you do is type in a labor category. If you enter too broad of a term, you will be prompted with all of the labor categories that contain that particular term. After identifying the category (or sub-category), you can filter for (i) minimum education lever, (ii) years of experience, (iii) worksite (e.g. at the contractor facility or in a Government facility), and (iv) business size.

For example, if you type in the term "senior accountant", you will find 9 companies offering services ranging from $55 per hour to $134 per hour with an average of $84 per hour. The results also allow the user to download the specific GSA contract showing the rates.

One thing that CALC does not do (at least not yet) is to show labor costs for future years. Many of the GSA contracts are for five years with rates increasing each year. CALC returns only current year rates and will not return rates for any future years. You could download the contract and find future rates but that defeats the purpose of the website.

One thing that contractors on a GSA schedule should try is to enter their own contracted labor categories and see if the company shows up in the listing. If not, you should contact your GSA contracting officer and troubleshoot the problem.

Try it;

Thursday, May 28, 2015

Contractors that Grow Out of the NAICS Size Standard

Many small business contractors have, over the years, been unaware that contract(s) they have been awarded, can cause them to eventually exceed the applicable small business size standard for the NAICS code (North American Industry Classification System) identified in the solicitation and/or contract. Indeed, some contractors don't even have a clue that they've exceeded the size standard until a potential competitor pulls a size challenge on them.

Now there is a new DFARS (DoD FAR Supplement) provision that warns small business contractors that entering into a covered contract is an acknowledgement that doing so may cause it to eventually exceed the small business size standard identified in the solicitation and contract.

A covered contract includes solicitations using FAR part 12 procedures for acquisition of commercial items, when the estimated annual value of the contract is expected to exceed the small business size standard where the size standard is expressed in dollars or $70 million where the size standard is expressed in number of employees.

The provision reads:
The offeror acknowledges by submission of its offer that by acceptance of the contact resulting from this solicitation, the offeror may exceed the applicable small business size of the NAICS code assigned to the contract and would no longer qualify as a small business concern for that NAICS code. The offieror is therefore encouraged to develop the capabilities and characteristics typically desired in contractors that are competitive as other-than-small contractors in this industry.
We guess that now, contractors won't be able to plead ignorance when they graduate from being a small business.

Wednesday, May 27, 2015

DCAA Still Pushing for More Access to Employees

Yesterday we discussed an item appearing in DCAA's fiscal year 2014 Report to Congress - the Agency's desire to expand its subpoena authority to include commercial pricing or pricing based on "other than certified cost or pricing data". Today we want to look at another wish list item appearing in that report - more access to contractor employees.

DCAA strongly believes that having access to contractor employees to conduct interviews and observations is critical to ensure the high level of assurance required by GAGAS (Generally Accepted Government Auditing Standards). Although access to employees for such purposes is not generally considered a significant problem, DCAA continues to find contractors arguing that the Agency's access to records does not include access to employees.

FAR 52.215-2(d) specifically gives the GAO (Government Accountability Office) rights to interview any officer or employee; however, FAR does not specifically give DCAA this right. DCAA has submitted legislative proposals to support its right of access to contractor employees and to avoid any future confusion on DCAA's ability to interview those employees. This legislative change would ensure DCAA has access to employees, which allows DCAA to conduct audits in accordance with GAGAS.

The legislative proposal was not incorporated into the FY15 NDAA (National Defense Authorization Act) because, as the House Armed Services Committee explained, the Agency already has authority to interview contractor employees during the course of an audit if such an interview is required to complete the audit. While DCAA agrees with that assessment, some contractors still argue that the US Code and FAR specifically gives the Comptroller General (i.e. GAO) the right to interview employees and because there is no corresponding reference to DCAA, that DCAA does not have such rights.

Therefore, DCAA still believes a change to the statute is still necessary to clarify its right to interview contractor employees. DCAA is now monitoring denials of access to employees in order to fortify its position on the next NDAA go round.

Tuesday, May 26, 2015

DCAA Still Pushing for Expanded Subpoena Authority

Every year, DCAA (Defense Contract Audit Agency) prepares a report to Congress on its activities. The fiscal year 2014 report was issued on March 25, 2013 but just recently became publicly available. (Click here to download a copy). The feature we turn to first is Section 4, Significant Deficiencies and Recommended Actions to Improve the Audit Process. This is where DCAA lays out its views of deficiencies within the acquisition process and recommends changes to the ongoing challenges.

One of the challenges DCAA faces is the lack of express authority to review "data other than certified cost or pricing data". This lack of authority, according to DCAA, hampers its ability to obtain sufficient contractor data to conduct timely, quality audits, especially audits of commercial item procurement. To resolve this problem, DCAA wants authority to review and subpoena "data other than certified cost or pricing data". In its own words:
The DCAA 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 a 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 a fair and reasonable price determination. Contractors have been reluctant to provide this information to DoD, including DCAA. While the FAR allows contracting officers to request data, there is currently no authority to compel production of that data. This problem is likely to get worse. Even as the Department's Better Buying Power Initiative and Industry groups continue to promote the use of commercial procurements, there has been no improvement in the Department's ability to obtain adequate supporting data from contractors to support the proposed commercial prices. 
DCAA plans to submit a legislative proposal for the next NDAA (National Defense Authorization Act). The Agency believes that with this authority, it will be able to provide contracting officers timelier audit support and better-supported negotiation positions for commercial procurements, which will, in turn, improve their effectiveness and reduce the risk of paying excessive commercial prices.

 It may well be that the Department of Defense is not in favor of granting expanded subpoena authority to DCAA. In fiscal year 2014, it took DCAA an average of 95 days to turn out a forward pricing proposal audit report. If DoD can avoid procurements based "certified cost or pricing data", it can award contracts significantly quicker. They've got a pretty good process going with commercial item procurement - why would they want DCAA to come in and muddle up the situation?

Friday, May 22, 2015

Know the Solicitation Provisions - Convict Labor

A contractor filed a $1.4 million claim against the Army Corps of Engineers due to differing site conditions. The claim was denied and has been appealed to the ASBCA.

The contract was for construction of military housing. The contractor alleged that it was unable to get qualified carpenters onto base due to a change in base access policies. The contractor asserted that when it bid, it intended to use people with felony convictions and those in a pre-release program at a nearby prison. However, the Convict Labor clause (FAR 52.222-4) was included in the contract. The contractor claimed that it incurred increased administrative costs resulting from the need to process "hundreds" of applicants and perform "hundreds" of job interviews, all because it could not employ convict labor.

The problem with the claim was not that the allegations were not true but with the difficulty by the contractor to support the charges. During the course of the Government's review, the contractor

  • could not support its contention that there was a change in base access policies
  • its intentions to employ carpenters with felony convictions
  • increased costs due to processing and hiring new employees.

Claims are a tricky business where contractors must prove entitlement and quantum and the burden of proof rests solely upon contractors. In this case, the contractor may have been unfamiliar with the prohibition concerning convict labor. Had it included such intentions in its bid, the Government probably would have called them out - perhaps give them a chance to modify their bid. In any event, the costs related to interviewing and processing new hires would be the same regardless of the labor pool source.

Thursday, May 21, 2015

Undefinitized Contract Actions (UCAs)

To meet urgent needs, federal agencies, including DoD, can authorize contractors to begin work and incur costs before reaching final agreement on contract terms, specifications, or price, using an undefinitized contract action.

Such types of contractual actions are considered risky for the Government because contractors have little incentive to control costs as the Government normally reimburses contractors for all allowable costs incurred during the undefinitized period. Further, the Government may incur unnecessary costs if requirements change before the contract is definitized.

To help minimize these risks, defense acquisition regulations generally require undefinitized contract actions (UCAs) to be definitized within 180 days of issuance or before more than 50 percent of the estimated contract price is obligated, whichever occurs first.

The GAO (Government Accountability Office) recently issued a report on the Air Force's practices with respect to UCAs. Between 2010 and 2014, the Air Force obligated $14 billion on UCAs. For UCAs reviewed by GAO, the most common reason cited for awarding them was to meet urgent needs. The GAO didn't have a problem with the rationale or justification. They did find however that the Air Force never met the definitization time frames for the UCAs under review.

As mentioned, the Government (and particularly contract auditors) consider UCAs to be high risk procurement actions. Auditors are instinctively suspicious that contractors will try to dump everything, including the kitchen sink, onto the contract. With little or no incentive to control costs, prior to definitization, contractors tend to be less concerned with expenditures.

As a result of the GAO findings, contractors with UCAs can expect heightened awareness and more oversight of UCAs. DoD, at least, will be tightening up its policies with respect to definitization time frames. And, with DCMA (Defense Contract Management Agency) buildup of pricing capabilities, the turn-around time to conclude negotiations should decrease significantly.

Wednesday, May 20, 2015

Purchase Card Programs - DoD Employees Caught

Right on the heels of the House Committee on Veterans' Affairs hearing on waste, fraud, and abuse in the VA purchase card program, the DoD-IG (Inspector General) issued a report yesterday finding that DoD cardholders improperly used their Government travel charge cards for personal use at casinos and adult entertainment establishments. During the year ended June 30, 2014, DoD cardholders had 5,300 charges totaling more than $1 million at casinos for personal use and for adult entertainment. These transactions went undetected for several reasons. First, DoD's travel management office provided no help at all in assisting agency program coordinators to identify personal uses. Second, DoD policy does not specifically identify high-risk merchants such as casinos and adult entertainment establishments. And finally, the credit card issuing bank is not required to notify program coordinators or management officials of potential fraudulent activity or suspension of accounts.

Additionally, during the course of their audit the DoD-IG noted the following:

  • transactions with no associated travel status
  • automated teller machine (ATM) withdrawals that exceeded the overall Meal and INcidental Expense (MI&E) amounts while in a travel status
  • transactions at known casinos and adult entertainment establishments
  • declined authorization activity that could indicate personal use, and 
  • activity outside the required official Government travel locations.
We bring this up because contractors suffer from the same type of abuse found in Government agencies and the recommendations made by the IG may work in contractor locations. So, here are the recommendations.
  1. Develop better tools to identify and prevent personal use of Government charge cards. Current technology (data mining) should be able to identify transactions that do not have associated travel status, ATM withdrawals that exceed the MI&E allowance, transactions at known casinos and adult entertainment establishments, and activity outside the official Government travel location.
  2. Deactivate travel cards and/or reduce travel card limits for cardholders while not of official travel.
  3. Publicize merchant categories that are considered high risk for personal use.
  4. Require management to review declined authorization report every month.
  5. Require management to use existing tools in the reviews of travel charge activity (there are some tools available but not in wide use).
  6. Get the card issuing company to block usage at specific casino locations or adult entertainment establishments.
  7. Get the card issuing company to notify management of potential fraudulent use or suspension of  travel cards.
Do you see a potential for any of these recommendations being beneficial to your management of company issued credit cards?

You can read the entire report by clicking here.

Tuesday, May 19, 2015

Purchase Card Programs - Recommendations to Reduce Risks

We've spent the past couple of postings discussing our gleanings from last week's House Committee on Veterans' Affairs hearing on waste, fraud, and abuse in the VA purchase card program. The idea behind doing so is to offer some best practices to contractors who face similar issues in administering their own purchase card programs. The lessons learned by Government managers could be equally applied to commercial enterprises.

The following comes from the prepared testimony of the VA's acting assistant secretary for management and interim chief financial officer and highlights activities that the VA has done or plans to do to curb fraud waste and abuse in its purchase card program.

  1. The VA consolidated its purchase card program under its Financial Services Center enabling it to have centralized oversight and management. The number of purchase cards were reduced by 31 percent from 37,000 to 25,500.
  2. The VA reduced card spending limits due to inactivity, invalid training certificates, and lack of valid warrants.
  3. Controls have been implemented with the bank to limit the use of Government purchase cards for specific types of merchants.
  4. Training is required prior to the issuance of a card, with refresher training required every two years (anyone who has had an internal control audit by DCAA knows that training is always a recommendation).
  5. The VA conducts two types of oversight reviews, data mining and statistical sampling. The data mining seeks patterns or relationships in the data and identifies areas of potential non-compliance with policy requirements. The statistical sampling seeks to select and evaluate a representative sample of transactions to review for compliance with policy.
  6. The VA issues quarterly memoranda to responsible officials to notify them of potential unauthorized commitments such as split purchases and transactions that exceeded micro-purchase limits that may require ratification. The VA requires positive feedback on actions taken.
VA employees spend about $4 billion annually on 6 million transactions (that's an average of $667). Certainly these numbers dwarf what any single contractor might spend and therefore the levels of oversight (both internal management and Congressional) is warranted. However, contractors have been significantly harmed by purchase card abuse and to the extent that those abuses are passed on to the Government through flexibly-priced contracts, purchase card programs will be on the Government's radar. Should DCMA (Defense Contract Management Agency) decide to initiate a CPSR (Contractor Purchasing System Review) at your facility, it is almost a certainty that they will look at your purchase card program.

Monday, May 18, 2015

Purchase Card Programs - How Effective are Your Internal Controls

We finished last week by discussing the House Committee on Veterans' Affairs hearing on waste, fraud, and abuse in the Veteran Administration's (VA) purchase card program. Although the hearing was limited to problems in the VA, issues with purchase card programs is widespread among Government contractors and can significantly affect contractors' ability to ensure the propriety of costs charged to Government contracts. By studying the Government's purchase card problems, the methods used by its oversight arms to ferret out fraud, waste, and abuse, and the internal controls established to reduce the risk of fraud in the program, we might be able to offer up best practices for contractors.

The Government Charge Card Abuse Prevention Act of 2012 (Charge Card Act or CCA) requires agencies to establish and maintain safeguards and internal controls for purchase cards. Under the CCA, Inspectors General must conduct periodic risk assessments of agency purchase card programs to analyze the risks of illegal, improper, or erroneous purchases. Inspectors General then use these risk assessments to determine the necessary scope, frequency, and number of audits or reviews of these programs. Long time readers of this blog and those involved in internal audits will recognize the "risk assessment" is the second of the five elements of internal controls.

At the Hearing, the VA's Assistant Inspector General for Audits and Evaluations described their risk assessment as follows:
For the fiscal year (FY) 2015 risk assessment, we performed data mining on credit card transactions using a set of defined criteria designed to identify transactions or patters of activity that appear to represent potential fraud, waste, or abuse. Our risk assessment examined
  • Cardholders with a high volume of transactions
  • Multiple transactions made on the same day with the same vendor, amount and purchase card
  • Credit card purchases that exceeded established purchase card limits
  • Recurring transactions made with the same vendor
  • Transactions occurring on holidays, weekends, in the last two months of the fiscal year, and during unusual times of the day
  • Transactions made by a facility that were more than double the nationwide average number of transactions and costs per purchase card.
This would seem like a likely starting point for contractors to assess their risks and vulnerabilities in purchase card programs. There doesn't seem to be anything in this listing that would test or point to the use of cards to make "personal" purchases so that might be an additional risk factor that contractors consider.

Continuing on with the testimony, the Assistant IG  noted that from the above risk assessment, the organization identified seven high risk areas that included:

  • Cardholder transactions that exceed authorized purchase limits including unauthorized commitments.
  • Inadequate financial controls prohibiting duplicative and split payments
  • An excessive number of cardholders making purchases with inadequate justifications
  • An unmanageable span of control resulting from an unbalanced ratio or cardholders to approving officials.
  • Inadequate recording or reporting of financial information.
  • Insufficient oversight of year-end spending
  • Inadequate review of purchases by approving officials.
Based on the risk assessments, the IG plans to conduct audits and reviews to identify control weaknesses, strengthen program control, and address inefficiencies in VA’s Purchase Card Program. Its recent work has identified significant control weaknesses that did not prevent transactions involving unauthorized commitments, improper payments, split purchases, and purchases that lacked appropriate supporting documentation.  

So evidently, the controls that are in place to prevent unauthorized commitments, improper payments, split purchases, and purchases that lacked supporting documentation were not working. Now its up to the auditors and management to improve its system of internal controls to prevent that from happening in the future.

Friday, May 15, 2015

Problems with Purchase Card Programs

Yesterday, the House Committee on Veterans' Affairs held a hearing on waste, fraud, and abuse in the VA's (Veterans Administration) purchase card program (i.e. credit cards issued to VA employees). This hearing focused on the program's weak internal controls which have caused serious violations of procurement laws and, according to the Committee Chairman, has resulted in an astounding $5 billion a year in improper and unauthorized procurement expenditures for at least the past five years.

Although this hearing focused on credit cards issued to VA employees, contractors face the same kinds of problems in their own P-Card (purchase card) programs. The deficiencies identified by the Inspector General's (IG) office of the VA have been found at Government contractors, especially at some of the big DOE (Department of Energy) M&O (Management and Operations) contractors. While the magnitude of the problem is not as significant as the VA, it remains a management concern at most contractors who have implemented purchase card programs.

The litany of identified deficiencies are classic textbook internal control weaknesses frequently found in purchase card programs. These include:

  1. Exceeding authorized purchase limits individually or aggregately
  2. An excessive number of purchase cardholders with inadequate justification
  3. An unmanageable span of control (ratio of cardholders to approving officials is high)
  4. Inadequate financial controls prohibiting duplicative or split payments
  5. Inadequate recording or reporting of financial information
  6. Insufficient oversight of year-end spending, and
  7. Inadequate review of purchases by reviewing officials.

In the context of the VA, the Committee Chairman made the following observation:
Violations of procurement laws are not mere technicalities. It is not just a matter of paying a little more for needed supplies and services as some apologists for VA have asserted. Among other things, purchase card abuse invites cronyism and the directing of business to favored vendors, including those who may employ former VA officials. Moreover, buying biologic and medical supplies without contracts imperils patient safety. Without contracts, FDA certifications are not a legal requirement nor are the Buy American Act or Trade Agreement Act provisions. 
In the context of contractors, the inappropriate use of purchase cards can result in purchases that bypass contractors' purchasing department and its associated internal controls, policies, procedures, and practices. Thus, there is an increased likelihood of paying too much for needed materials and supplies.

Next, we will look as some of the recommendations made by the IG to tighten up the purchase card program. Perhaps some of these recommendations can be applied to contractor purchase card programs.

Thursday, May 14, 2015

Audit Finds $134 Million in Unsupported Subcontract Costs

A recent audit report underscores the importance for contractors to adequately support incurred costs.

The Special Inspector general for Afghanistan Reconstruction (SIGAR) recently issued an audit report on costs incurred by a contractor providing highly specialized counterinsurgency intelligence exerts to mentor and train Afghan National Security Forces, to provide for hiring bilingual cultural advisers, and developing Afghanistan-specific instruction in counterinsurgency operations to strengthen Afghanistan's capacity to combat terrorist and insurgent networks.

The audit identified two material weaknesses, one significant deficiency, and three instances of noncompliance with the terms and conditions of the contract. Specifically, the contractor did  not retain sufficient supporting documentation for a subcontractor's costs. As a result, the auditors were unable to determine whether the subcontract costs were incurred, allocable, and complied with the appropriate cost principles.

Additionally, the contractor did not compile  with federal procurement policies in that it did not provide support for a competitive procurement process for three subcontracts totaling almost $5 million. As a result, the contractor was unable to demonstrate that these costs were reasonable. Finally, the contractor improperly billed the U.S. government for fixed fees beyond the amount authorized by the contract. Although the contractor ultimately refunded the excess fees, the Government lost $36 thousand in interest.

As a result of all of these deficiencies, the auditor found that $134 million was not supported with adequate documentation. The contractor disagreed with the audit findings of course and the auditors, in turn, disagreed with the contractor's disagreement. Because there is an impasse, the auditor decided to do more work to determine the allowability of and recover, as appropriate, $134 million in unsupported costs.

This thing has turned into a real mess which could have been avoided had the contractor simply done a better job in documenting its costs.

Wednesday, May 13, 2015

Other Direct Costs (ODCs)

Everyone is familiar with labor and material costs that can be identified specifically to a contract and therefore charged direct to that contract. Subcontracts are another cost category that is identifiable and charged direct to contracts. In addition to the big three (labor, materials, and subcontracts) there are other types of expenses which, under certain circumstances, may be charge direct to a specific job or contract. Typically these are lumped together and referred to as ODCs or Other Direct Costs.

Examples of ODCs include

  • special tooling and test equipment, dies, jigs, and fixtures
  • plant rearrangement
  • packaging and packing
  • consultant's fees
  • outbound freight
  • expediting
  • royalties
  • travel

ODCs can be charged direct to contracts, allocated on some representative basis, or charged partially direct and partially by allocation.

When it comes to auditing ODCs, contract auditors are always wary of inconsistent charging practices between fixed price and cost-type contracts. Cost type contracts are "riskier" than fixed price contracts because contractors might be tempted to charge ODCs direct on cost-type contracts because they would be fully reimbursable while charging ODCs indirect on fixed price contracts so as to allow their cost type contracts to share in the absorption of ODCs.

Auditors are also cautious to determine whether costs charged to ODCs might also have continuing use on other contracts or on successor contracts and therefore should be capitalized rather than expensed. Plant rearrangement costs to configure a facility for a particular contract might fall in this category.

Contractors should generally charge everything direct that can be identified direct to a contract. In the case of ODCs where charging practices could go either way, contractors should establish firm practices, document them, and consistently follow them. That will help avoid potential audit issues.

Tuesday, May 12, 2015

Don't Assume That Your Email was Duly Received by the Addressee

Here's a case involving the SBA's Office of Hearings and Appeals (OHA) but it has relevance beyond that particular venue. It involves a size protest to the contracting officer and subsequent appeal to OHA.

A size appeal must be filed at OHA within fifteen days of receipt of the size determination. An appellant received the size determination on February 3, 2015 but the appeal petition was not received by OHA until April 9, 2015 and therefore "plainly untimely". Under the relevant regulations, OHA has no discretion to extend or waive the deadline for filing an appeal.

The appellant maintained that it attempted to transmit its appeal by e-mail on February 18, 2015, which would have met the 15 day deadline. It produced an acknowledgement from its e-mail system entitled "Certificate of service." It also contained the phrase "Delivery to these recipients or groups is complete, but no delivery notification was sent by the destination server". There was a problem however in that OHA never received the appeal (or so it maintains).

By regulation, a document must be received at OHA in order to be considered filed. The regulations are clear that an appeal petition is not filed until it is actually received at OHA. SBA regulations provide that although e-mail is a permissible method of delivery, the sender is responsible for ensuring a successful, virus-free transmission, and the sender is encouraged to contact OHA by telephone to verify receipt. Accordingly, having chosen to submit its appeal by e-mail, the appellant was responsible for ensuring that the email successfully reached OHA. The appellant could not reasonably rely solely upon the acknowledgement from its e-mail system, particularly given that the appellant received no response, over a period of several weeks, from OHA.

It is critical to followup e-mail transmissions of important documents with a phone call or some other form of positive assurance, especially on time-critical matters. Do not assume that your and the Government's email systems are infallible.

Monday, May 11, 2015

Incurred and Claimed Does Not Prove Reasonableness

BAE Systems San Francisco Ship Repair was awarded a task order under a multiple-award, task order contract (MATOC) for programmed maintenance of a Logistics Support Vessel. During performance, BAE discovered significant differences between the drawings for potable water and drain piping systems and those that actually existed on the vessel. BAE filed a equitable adjustment claim for $904 thousand.

Eventually, DCAA (Defense Contract Audit Agency) was requested to audit the claim. In its report, DCAA reported that BAE had submitted adequate data to support its claim and considered the claim to be acceptable as a basis for negotiation of a fair and reasonable settlement. Of the $904 thousand claimed, DCAA took exception to a very insignificant $566 - almost not worth reporting upon.

The contracting officer evidently did not like the DCAA audit report because she dismissed it entirely and rendered a decision that BAE was entitled to recover only $351 thousand. She wrote:
Defense Contract Audit Agency (DCAA) ... did not question the amounts of your proposed claim. All DCAA did, unfortunately, was verify the addition of the claim without verifying any of the underlying facts. DCAA did not have any of the oroginal time cards or any other information beyond the summary you provided. DCAA took no exception to the proposed material costs. DCAA specifically did not examine entitlement, but only looked at quantum. DCAA had no knowledge of the actual facts and did not look beyond the information offered by BAE.
BAE appealed the contracting officer's final decision to the ASBCA (Armed Services Board of Contract Appeals. As the case progressed, BAE, at one point, moved for a summary judgment, asking whether its claim be based on its actual, recorded costs of performing additional work as confirmed by Government auditors, or should the amount be based on an estimate by Government personnel. BAE stated that its proposed costs are actual costs and DCAA confirmed them by tracing to books and records. The Government should not be heard to impeach or contradict its own auditors.

The ASBCA denied BAE's request for summary judgment. The ASBCA did not agree that BAE's costs were automatically allowable simply because those costs were recorded in the books and records and because DCAA had reconciled those costs to the books and records. It further stated that the contractor has the burden of proof, unaided by a presumption of reasonableness, to establish that the costs it incurred were reasonable. Therefore, BAE's claim does not meet the requirement, imposed by law, that it had met its initial burden of establishing that the costs it claimed are reasonable.

Friday, May 8, 2015

Adequate Time for Proposal Preparation After Receipt of Q&As.

A lot of readers of this blog prepare and submit proposals in response to various types of Government solicitations. All solicitations contain evaluation factors ranked in order of importance and all solicitations give prospective offerors the opportunity to ask clarifying questions and receive responses from the Government. The Q&As are often valuable in assisting prospective contractors to better understand some of the nuances of the Government's requirements and to prepare their best offer possible.

What would you think then if three days before the solicitation's closing date, the Government provided you (and all offerors) the answers to 359 offeror questions? Would you have time to read, digest, and consider them in your proposal submission? Would there be adequate time to prepare your proposal?

That was the subject of a recently issued bid protest decision. The protestor argued that the Government was required to extend the closing date for the receipt of proposals in order to afford offerors adequate time to prepare their proposals, but failed to do so. The protestor argued that the type and quantity of questions that were answered required additional proposal preparation time.

The Comptroller General (CG) noted that the protestor did not identify the specific questions or answers that required additional proposal response time nor did it identify and changes to the solicitation's terms effected by the amendment. Neither did the CG find, on its own, that the sheer number of questions and answers alone to be persuasive proof of a need for more than three days of proposal preparation time, especially where, as here, the answers

  • did not revise solicitation terms and
  • several questions were repetitious (e.g. number of contracts to be awarded, the procurement timeline, the calculation of inventory, and contracting with small businesses).

The protest was denied.

Thursday, May 7, 2015

Identification of Subcontracted Effort in Offers

Presently, FAR 52.215-22 requires offerors who intend to subcontract more than 70 percent of the work to be performed under the contract, task order, or delivery order to identify in its proposal the amount of the offeror's indirect cost and profit/fee applicable to the work to be performed by the subcontractor and a description of the added value provided by the offeror as related to the work to be performed by the subcontractor(s).

Until now, this information wasn't really used in any meaningful way. Today, the FAR Council's published a final rule (effective June 8, 2015) that will require contracting officers to do something with the information. Specifically in those instances where an offeror for a contract, task order, or delivery order informs the agency pursuant to FAR 52.215-22 of its intention to award subcontracts for more than 70 percent of the total cost of work to be performed under the contract, task order, or delivery order, the contracting officer must:

  1. Consider the availability of alternative contract vehicles and the feasibility of contracting directly with a subcontractor or subcontractors that will perform the bulk of the work; 
  2. Make a written determination that the contracting approach selected is in the best interest of the Government; and 
  3. Document the basis for such determination. 
This requirement comes from the 2013 NDAA (National Defense Authorization Act) so it applies statutorily to Defense and State Departments but for consistency, the FAR Councils extended the requirement to all agencies.

Wonder how many offerors will come in over the 70 percent subcontracted threshold now? Contracting officer just got a whole lot more work dumped on them if thy try to award contracts to firms with 70 percent or more subcontracted effort. 

Wednesday, May 6, 2015

Relax DCAA, You Can't be Sued for Defective Auditing

Last September, KBR (Kellog Brown & Root Services, Inc.) created quite a stir in the Government contracting community when it filed a suit against the Government to recover $12 million in legal fees incurred in defending against Government claims based on what it considered to be defective auditing by DCAA (Defense Contract Audit Agency). KBR claimed that DCAA was negligent in performing its audit work and did not follow a number of Generally Accepted Auditing Standards (GAGAS). Click here for a recap of the initial filing.

Late last month, a Federal Judge for the US District Court (Delaware), granted a motion by the Government to dismiss the suit because DCAA was acting within the Government's discretionary authority and therefore immune from prosecution.

Sovereign immunity not only protects the US from liability, it deprives a court of subject matter jurisdiction over claims against the US. While the FTCA (Federal Tort Claims Act) waives the federal government's sovereign immunity with respect to tort claims for money damages, the "discretionary function" exception limits that waiver, eliminating jurisdiction for claims based on the exercise of a discretionary function on the part of the employee of the government.

The Supreme Court has established a two-part test to determine whether the discretionary function exception applies. First, the court must consider whether the action involves an element of judgement or choice. Second the court must determine whether the judgment exercised is of the kind that the discretionary function exception was designed to shield. In other words, the discretionary function exception protects only governmental actions and decisions based on considerations of public policy. If a regulation allows the employee discretion, the very existence of the regulation creates a strong presumption that a discretionary act authorized by the regulation involves consideration of the same policies which led to the promulgation of the regulations. The focus of the inquiry is not on the agent's subjective intent in exercising the discretion conferred by statute or regulation, but on the nature of the actions taken on whether they are susceptible to policy analysis.

In this case, the Judge ruled that DCAA performed functions with significant discretionary elements. KBR argued that DCAA's audit did not involve discretionary judgment because the Agency failed to comply with mandatory auditing standards and procedures such as the Contract Audit Manual (CAM) and Generally Accepted Government Auditing Standards (GAGAS). However, the Judge sided with the Government in its contention that CAM and GAGAS both require auditors to exercise professional judgment when conducting audits. Regardless, DCAA's alleged failure to meet certain standards set by CAM and GAGAS does not eliminate the discretionary nature of DCAA's audits. Government auditing standards leave ample room for the exercise of professional judgment. Therefore, as the Judge explained, DCAA audits involve professional judgment and constitutes a discretionary action.

You can read the entire decision by clicking here.

Tuesday, May 5, 2015

Why Does it Take so Long to Change the FAR?

 The FAR (Federal Acquisition Regulation) Operating Guide details the process for issuing revisions to the FAR. The Guide states that the standard timeline for FAR cases is 16 months from the time a report is submitted with a draft proposed or interim rule until the final rule is published. If 16 months seems like a long time, it is. However, be advised that the FAR Council often fails to even achieve a 16 month turn-around.

The FAR rule-making process is somewhat unique in that it does not follow the typical "Office of Information and Regulatory Affairs (OIRA) process. FAR rule-making begins by going through the FAR Council process, which includes several layers of approval that include (i) the Defense Acquisition Regulatory Council (DARC), (ii) the Civilian Agancy Acquisition Council (CAAC), (iii) General Services Administration (GSA), and (iv) the Office of Federal Procurement Policy (OFPP) before it even gets to the OIRA.

After the FAR Coucil process, rules are then sent for a final check through the OIRA clearance process before publication as a final rule. The FAR Council, CAAC, and DARC all have members representing various agencies and are all expected to reach consensus on these rules, which are often very complex.

There have been many complaints about the process by various stakeholders and these complaints have reached Congress. The version of the 2016 NDAA (National Defense Authorization Act) passed by the House includes a provision that requires a study to determine how the process can be expedited.

Specifically, the NDAA directs the OFPP (Office of Federal Procurement Policy) to conduct a review of the FAR rule-making process with the goals of improving the timeliness of this process and identifying inefficiencies that contribute to the slowness. Congress expects a briefing on the OFPP study later this year on the findings of the review. It also expects to hear "... recommendations for improving the FAR rule-making process."

Don't expect anything to change significantly.

Monday, May 4, 2015

Attendance by Government Employees at Professional and Technical Conferences

After the GSA conference scandal a couple of years ago (remember the guy who organized an $800,000 junket for 300 GSA employees to Las Vegas, then took a selfie of himself sitting in a spa tub overlooking Las Vegas, sipping wine and eating cheese?) many Governmental agencies significantly curtailed their conference spending - so much so that even where there was solid justification for attending professional conferences, no one in the organization was willing to approve (and fund) such attendance out of a fear of a next big scandal. Many view conferences as boondoggles - taking away from time that could be better spent at a desk.

There is a provision in the 2016 NDAA (National Defense Authorization Act) that attempts to reverse the trend. The NDAA which has now passed the House, includes a provision that will require the Department of Defense to look into its policies and procedures related to professional travel and report back to Congress its findings and recommendations necessary to further enable professional development of its workforce.

The House Armed Services Committee expressed concern that many organizations organizations within the Department of Defense have either eliminated or severely restricted temporary duty travel for professional and technical conferences. While the committee supported efforts to reduce non-essential costs, it believed such conferences provide value by enabling Department of Defense engineers, scientists, and other technical personnel to share research, learn about cutting-edge innovations, and interact with their peers from across the country and the world.

While the committee acknowledged DoD's recent show of support for attendance at conferences when appropriately justified (and when funds were available), it expressed concern that the lengthy and complex approval processes to enable conference attendance by Federal employees is unduly hampering the ability of academic and scientific personnel in the Department of Defense to perform their jobs, may inhibit career progression, and could discourage personnel with highly technical skills and competencies from entering the workforce.

To ensure that the process of approving conference attendance is not unduly bureaucratic, the NDAA contains a provision that requires the DOD to examine its policies and procedures related to professional travel and to brief the House Committee on Armed Services not later than October 1, 2015, on findings and recommendations necessary to further enable professional development of the workforce.

Friday, May 1, 2015

New Authority to Award Sole-Source Contracts to Women-Owned Businesses

In last year's NDAA (National Defense Authorization Act), in a move designed to increase participation by Women-Owned businesses in Federal contracting, Congress added a provision to allow contracting officers to award sole-source contracts to Women-Owned Small Businesses (WSOB) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) under certain circumstances. The SBA (Small Business Administration) has just released proposed regulations for implementing that statutory authority.

The first requirement is a set-aside contract. The SBA must first determine that WOSBs are underrepresented or substantially underrepresented in Federal procurement in the particular industry. Once that determination has been made, a contracting officer may restrict competition or make a sole source award.

Under the statutory authority, if a contracting officer cannot identify two or more WOSBs or EDWOSBs that can perform at a fair and reasonable price, but identifies one WOSB or EDWOSB that can perform at a fair and reasonable price, the contracting officer can award the contract on a sole source basis, if the value of the contract, including options, does not exceed $6.5 million for manufacturing contracts and $4 million for all other contracts.

This sole source authority can only be used where a contracting officer conducts market research in an industry where a WOSB or EDWOSB set-aside is authorized, and the contracting officer cannot identify two or more WOSBs or EDWOSBs that can perform at a fair and reasonable price, but identifies one that can perform.

Note here the provision that the contracting officer must ensure that the award is made at a fair and reasonable price. This provision is not a license to award contracts on a sole-source basis at any cost.