Monday, June 8, 2015

Costs Associated with Government Compliance

How much extra does it cost Government contractors to comply with acquisition regulations and other requirements unique to Government contracting? Probably a lot. However, if contractors have thought through their cost allocation systems, most of that increased costs are passed right along to the Government. Those costs are not being shared by non-Governmental work nor do those costs come out of contractors' profit or fees. When we were auditors, we often carried the brunt of accusations that we should just go away and the Government would save a bundle of money.

There is no doubt that Government regulations increase the cost of goods and services. Most of these regulations are born out of the necessity to protect the taxpayer. Every time there's a scandal, Congress comes up with a few more regulations. Incidentally, its many of those regulations that prevent serious acquisition reform.

Some of those contractor complaints must have landed on some Senators as the Senate Armed Services Committee has added a provision to the Senate version of  2016 National Defense Authorization Act that calls for a six-month study to determine just how many dollars that Government regulations are adding to the cost of procurement. The provision reads;
The Secretary of Defense shall conduct a survey of the top ten contractors with the highest level of reimbursements for cost type contracts with the Department of Defense during fiscal year 2014 to estimate industry's cost of regulatory compliance (as a percentage of total costs) with government unique acquisition regulations and requirements in the categories of 
  • qualify assurance
  • accounting and financial management
  • contracting and purchasing
  • program management
  • engineering,
  • logistics
  • material management
  • property administration
  • and other unique requirements not imposed on contracts for commercial items.
It will be interesting to see the results of this study. We wonder how they will allocate the occupancy costs associated with various Government agencies in residence. Each one of these top 10 probably have 100 or more auditors and that many representing contract administration (e.g. DCMA). The cost of housing these folks is no small potatoes.

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