Pilot Program for Increased Cost or Pricing Data Threshold

The Fiscal Year 2016 National Defense Authorization Act (NDAA) authorized a pilot program to test the "efficacy" of using a risk-based approach to increasing the threshold for submission of cost or pricing data. Currently, the threshold sits at $750,000. Under the pilot program, that threshold significantly increases to $5 million.

The purpose of increasing the TINA (Truth in Negotiations Act) threshold is to make things easier on contractors and contracting officers. Auditors are generally opposed to the increased thresholds however, there is a probability that by October 2018 when the pilot program ends, the test will be rendered a success and the $5 million threshold will be made permanent.

The Department of Defense is now seeking candidates to test this authority and has requested the Army, Navy, and Air Force to each nominate at least one candidate program. The nominations must address the following six elements/questions.

1. Whether the Government received, within the previous 12 months, adequate certified cost or pricing data and completed cost analysis, with similar configuration, and quantity and delivery schedules.
2. Whether the price analysis demonstrates historical pricing stability with no significant expectation of future deviation.
3. Report any deficiencies with DFARS 252.215-7002 (estimating system requirements) or DFARS 252.242-7006 (accounting system administration)
4. Have contractors/subcontractors demonstrated a history of providing quality products in accordance with delivery terms?
5. Have contractors/subcontractors demonstrated a history of providing data required by the contracting officer to determine the proposed prices are fair and reasonable?
6. Identify any significant previous audit findings or other required previous contract adjustments.

If you think that you or one of your programs is a candidate for this pilot program, it wouldn't hurt to nominate yourself. Let your contracting officer know of your interest. 

You can read the entire guidance memorandum here.

President Veto's the Fiscal Year 2016 NDAA

Yesterday, the President vetoed the Fiscal Year 2016 National Defense Authorization Act (NDAA). His message accompanying the veto and his rationale for doing so can be read here. The reasons for rejecting the bill did not include objections to any of the procurement related provisions that we discussed last month (for example, see here, here, and here). 

It is not clear what will happen next. News reports project that the Senate has enough votes to override the veto but not the House. The Chairmen of the Senate and House Armed Services committees have both stated that there is no backup plan for the authorization bill so until someone blinks, the defense bill languishes.

National Defense Authorization Act for Fiscal Year 2016 - Part 3

We are continuing our coverage of the Fiscal Year 2016 National Defense Authorization Act. Although not yet signed by the President, the Bill has emerged from Conference Committee and the Senate and House will be voting on it soon. As we mentioned yesterday, several sources have reported that the President is threatening a veto of the bill however, the President's objections do not impact the topics we have been covering. Those will most likely remain in whatever bill is finally agreed upon.

Today we will discuss a curious short provision that has been tucked into the NDAA, Section 887, Effective Communication Between Government and Industry. The provision reads as follows:

Not later than 180 days after the date of the enactment of this Act, the Federal Acquisition Regulatory (FAR) Council shall prescribe a regulation making clear that agency acquisition personnel are permitted and encouraged to engage in responsible and constructive exchanges with industry, so long as those exchanges are consistent with existing law and regulation and do not promote an unfair competitive advantage to particular firms.

This short provision was offered by Congressman Gerry Connolly (VA) back on May 14, 2015 and survived both the House Committee and the House/Senate Conference Committee deliberations.

The subject of better and more frequent communication between the Government and industry was a hot topic back in 2011. Back then, the Office of Federal Procurement Policy (OFPP) came out with its 13 page "Myth-buster" memorandum. There was (and apparently still are) wide-spread perception that contracting officer should not meet with vendors for fear of causing contract delays, or committing some kind of ethics violation. The OFPP unsuccessfully tried to dispel that notion but the problem with non-responsive contracting officers lingers.

Perhaps a FAR requirement to make communications more pro-active will be more successful than a letter from the OFPP administrator.

National Defense Authorization Act for Fiscal Year 2016 - Part 2

The Fiscal Year 2016 National Defense Authorization Act has been agreed to by both the House and Senate however there were several reports yesterday that the President will veto the bill. While the $604 billion authorization is the number that the President asked for - there is disagreement on the allocation of those funds.

Yesterday we discussed Section 893 which prohibits DCAA (Defense Contract Audit Agency) from taking on any reimbursable work (i.e. contract audits for other Government agencies) until it clears up DoD's backlog of audits. Today we are highlighting Section 896 which attempts to determine the cost of regulatory compliance. This should be an interesting report.

Specifically, Section 896 requires DoD to conduct a survey of contractors with the highest level of reimbursements for cost type contracts with DoD during fiscal year 2014 to estimate industry's cost of regulatory compliance with Government-unique acquisition regulations and requirements in the categories of:

• Quality 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.

Section 893 does not define the "highest level of reimbursements" so we are not sure how low the threshold will be set or how many contractors will be surveyed. Certainly the top ten defense contractors will be included. The provision also wants the Department to express the cost of regulatory compliance as a percentage of total contract costs. Such a percentage result could be applied more broadly for any Government contractor to assess the cost of compliance.

The report is due to Congress in six months.

National Defense Authorization Act for Fiscal Year 2016

Yesterday, the Chairman of the House Armed Service Committee announced that House and Senate negotiators have reached an agreement on the National Defense Authorization Act for Fiscal Year 2016 (NDAA). The Act authorizes $515 billion in spending for national defense and an additional $89.2 billion for Overseas Contingency Operations (OCO) for a total of $604.2 billion. Over the next few days, we will describe some of the provisions that will be of interest to Government contractors. We start with Section 893, Improved Auditing of Contracts. Its an interesting title inasmuch as it has nothing to do with improving the audit process. It simply reduces the amount of work that the Defense Contract Audit Agency (DCAA) performs.

Section 893 prohibits DCAA from providing audit support for non-Defense Agencies (e.g. NASA, Department of Energy) unless the Secretary of Defense certifies that the Agency's backlog for incurred cost audits is less than 18 months of incurred cost inventory. And just to make sure that DCAA doesn't try to hide some extracurricular activities, Section 893 also requires that the Defense Department reduce its funding for DCAA by an amount that equals any reimbursements for non-DoD work. At one time, reimbursable audit activities accounted for eight percent of the Agency's budget. This means that non-DoD agencies that have utilized and relied upon DCAA audits are now forced to find other sources for required contract audits.

Section 893 also adds a couple of new items for inclusion in DCAA's annual report to Congress. Congress now wants DCAA to report on the percentage of questioned costs sustained or recovered. It has long been suspected that the many of the Agency's reported findings have not been sustained by procurement (i.e. the Contracting Officers). This may be more a reflection on the contracting officer community and their unwillingness or inability to work hard at sustaining reported findings, than on DCAA itself. Also, the annual report must include a description of outreach actions toward industry to promote more effective use of audit resources. That should be interesting. We haven't met a Government contractor yet that doesn't have a few ideas of what DCAA can do with their auditors.

Finally, Section 893 requires the Department of Defense to conduct an internal review of the oversight and audit structure functions within DoD with the goals of enhancing the productivity of oversight and program and contract auditing to avoid duplicative audits and streamlining the oversight process. The report must include (i) a description of actions taken to avoid duplicative audits and streamline oversight reviews, (ii) a comparison of commercial industry accounting practices with CAS to determine if some portions of CAS compliance can be met through such commercial practices, (iii) a description of standards of materiality used by DCAA and the DoD-IG, (iv) an estimate of average delay and range of delays in contract awards due to the time necessary for DCAA to complete pre-award audits, and (v) the total costs of sustained or recovered costs both as a total number and as a percentage of question costs. Presumably, the last item will reconcile with the data that DCAA must now include in its annual report.

Over the past few weeks, we have been bringing you updates on provisions in the House and Senate versions of the National Defense Authorization Act for 2016. The differences between the respective bills are being ironed out in conference committee so we do not know at this time which provisions will survive the final cut.

In the meantime, various interest groups have been weighing in on different aspects of the proposed legislation. Earlier this week, for example, the Professional Services Council (PSC), representing Government service contractors, released a letter written to Chairmen of the House and Senate Armed Services Committees expressing concern with "a small number of proposals" included in the bills.

One of their concerns addresses the proposal to limit DCAA's (Defense Contract Audit Agency's) ability to perform audits for other Governmental agencies on a reimbursable basis until such time as the Agency eliminates its own backlog of audits for the Department of Defense. We wrote concerning this provision back on June 3rd, 2015.

In PSC's view:

PSC supports many elements of this provision and shares the Senate Armed Services Committee’s concern about DCAA audit backlogs. However, we recommend that paragraph (a), which limits the ability for DCAA to assist non-Defense agencies with audit support, be deleted. Paragraph (a) is likely to exacerbate audit backlogs across all government agencies and may not improve DCAA’s capacity to support its work on DoD-related audits.

The PSC did not explain how the provision would likely exacerbate the audit backlog across all Government agencies but we can guess. When DCAA conducts incurred cost audits, they include audit coverage for all flexibly-priced contracts regardless of the agency awarding the contract. In reality, it takes very little additional audit effort to include non-DoD contracts as part of the scope of audit. If DCAA were prohibited from including those contracts, the awarding agencies would have to find someone else to audit their contracts. Since most agencies do not have contract auditors, it means that they'll have to contract with outside firms to perform their contract audits. So, instead of a single audit, the Government will end up performing multiple audits, incurring higher audit costs.

Not only will it likely cost the Government more money overall to conduct multiple audits, but contractors will be subjected to multiple audits and that obviously results in additional costs and inefficiencies for contractors.

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.

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.