Contractors to Get Double Teamed on Forward Pricing Rate Proposals

DCMA (Defense Contract Management Agency), not to be confused with DCAA (Defense Contract Audit Agency) recently implemented a policy to encourage its contract administration staff to complete reviews of forward pricing rate proposals (FPRP) within 30 days of receipt and commence negotiations of forward pricing rate agreements (FPRA) within 60 days of receipt.

DCMA is growing their cost monitoring function because they can no longer rely on DCAA to provide timely reporting on FPRPs.  DCMA is gearing up its capability to make sound and timely assessments of contractor submitted FPRPs and they will be performing their reviews at the same time DCAA is conducting their audit(s). This means that contractors will need to prepare themselves to be responsive to simultaneous reviews, one from DCMA and the other from DCAA.

The DCMA policy emphasizes that input from DCAA is not necessary to complete its review unless someone in their chain decides that audit input is necessary to close a critical gap of information. That begs the question, doesn't it, as to why DCAA's audit is necessary to begin with. Who in DCMA is going to say that he/she can't finish their review of an FPRP because it needs information from DCAA. That will never happen.

But, DCAA is going to plug along and do their review anyway. At such time as they're comfortable with the sufficiency of their audit tests, they'll issue their report to DCMA. DCMA, in turn, will look it over and do one of two things (according to a recent DCAA memo). DCMA will look it over and see if there is something in there that would cause them to bail on the rates that they had negotiated and re-open the rate determination process or, they will read it and file it for future use. Guess which of the two options will prevail most often.

Notwithstanding the fact that we have two Agencies wasting resources by performing the same reviews, but we have contractors already complaining that they have to provide the same information, sometimes formulated slightly different to appease the respective staffs, at additional cost to them (and ultimately the Government).

This dual approach to reviewing FPRAs can't last too long. Complaints will be heard at a high enough level for someone in the Defense Department to make an executive decision and call off one of the Agencies.

This work should stay with DCAA. That Agency has the auditors who are first and foremost, accountants, who understand the vagaries and intricacies of indirect rate analysis and complex cost accounting systems, DCAA just needs to stop trying to "audit" everything and develop non-audit processes for some of its "products". If they forget about GAGAS (Generally Accepted Government Auditing Standards) for a moment and get back to being nimble and responsive to customer needs, they can provide an extremely valuable service to the Government.

New Adequacy Checklist for Forward Pricing Rate Proposals

When there is a substantial amount of pricing activity at a particular contractor location, the contractor and the Government sometimes tries to negotiate direct and indirect rates to be used for future proposals. The contractor first submits a forward pricing rate proposal (FPRP). If the contractor and the Government can reach agreement, the parties sign a forward pricing rate agreement (FPRA). When the parties cannot reach agreement, the Government will often issue a unilateral determination called a forward pricing rate recommendation (FPRR). When there is a FPRA, contract negotiations are simplified and expedited because there is no need to "negotiate" direct and indirect rates.

Both the contractor and the Government need to be in agreement that an FPRA is desirable. A contractor might want one but the Government might deem the level of pricing activity insufficient to warrant the effort involved in the process of negotiating an agreement. And vice versa.

The primary responsibility for reviewing and negotiating FPRA's is that of the Defense Contract Management Agency (DCMA). The Defense Contract Audit Agency (DCAA) participates when requested. Most of the time, DCAA's assistance is requested.

DCAA recently issued a checklist for FPRPs. This checklist should not be confused with the Agency's checklist for pricing proposals discussed here and available here. The former covers direct and indirect rates only. The latter covers the entire proposal.

Contractors who plan on submitting forward pricing rate proposals should become familiar with the checklist to improve their submissions and reduce the chance that such submission will be declared inadequate and returned to the contractor for correction. Having a proposal returned will significantly delay the process forward pricing rates.

The key to the checklist is the understanding that in submitting forward pricing rate proposals, contractors are still bound by the format/content requirements  of FAR 15.403-5. The requirements for adequately supported direct and indirect cost rates are not lessened when a contractor separately submits an FPRP for the rates.

See related post: More on DCAA's Adequacy Checklist
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For those expecting the continuation of the discussion on compensation, we will return to that series in a few days.