New Procedures for Submitting Payment Requests on NASA Contracts

NASA has published an interim rule affecting its contractors who submit payment requests under cost-reimbursable contracts. Until the 2016 NDAA (National Defense Authorization Act), oversight of billings by NASA contractors was administered by DCAA (Defense Contract Audit Agency). However, the 2016 NDAA now prevents DCAA from performing any work for non_DoD agencies. As a result, all non-DoD agencies that have been relying upon DCAA to provide contract audit oversight are scrambling to find alternatives to DCAA.

NASA notes that since DCAA discontinued its "voucher support" to NASA, timely payments to contractors for work performed has been jeopardized and that a new mechanism is needed to implement procedural changes to minimize delays to contractors and suppliers and avoid the potential accrual of Government interest payments to contractors.

The new rule designates a centralized payment office where NASA contractors can send their vouchers, instructions for preparing the payment request, and the requirement for backup documentation. The requirement for backup documentation is the aspect that is going to seem most onerous to NASA contractors, who generally, have not had to submit such documentation previously but have only been required to maintain it for when an auditor came looking. This documentation requirements includes:

• Breakdown of billed labor costs and associated contractor generated supporting documentation for billed direct labor costs to include rates used and number of hours incurred.
• Breakdown of billed other direct costs (ODCs) and associated contractor generated supporting documentation for billed ODCs
• Indirect rates used to calculate the amount of billed indirect expenses., 

The rule also covers additional administrative matters such as the rejection of improper vouchers and re-billing for costs that were previously suspended or disapproved.

Presumably someone in NASA's billing office will be reviewing vouchers for accuracy and compliance. There is no provision for audit oversight of contractor billing systems - guess NASA contractors will now be on the honor system.

You can read the interim rule in its entirety here.

Who's Watching the Purse? Turns Out No One Is

NASA spent $15.6 billion in fiscal year 2013, more than half of that on cost-type contracts. Cost-type contracts pose a financial risk to NASA (and the Government, and the taxpayer) because they do not promise delivery of goods and services at set prices. To mitigate the risk associated with the use of cost-type contract, FAR requires contractors to submit annual incurred cost submissions. These submissions are then audited (or should be audited) to assess whether costs are properly applied to contracts, sufficiently supported, and allowable.

NASA (and all Government agencies) generally has six years to recover any unallowable costs from the date an adequate incurred cost proposal is submitted. Heretofore, the Defense Contract Audit Agency (DCAA) has been performing the incurred cost audits under a reimbursable agreement. According to NASA estimates, there are 1,153 incurred cost proposals waiting to be audited, 39 percent of which predate 2009.

Yesterday, the NASA Office of Inspector General (NASA-IG) issued a report on an audit intended to assess whether NASA had adequate procedures to ensure that costs passed on to the Agency are supportable, allowable, reasonable, and allocable. The report disclosed that NASA is at increased risk of paying unallowable, unreasonable, and unallocable incurred costs and of losing the opportunity to recoup improper costs because NASA contracting officer rely too heavily on DCAA's incurred cost audit process. Under DCAA's new risk-based methodology, DCAA has significantly decreased the number of contractor proposals it audits in an effort to reduce its six-year backlog of incurred cost proposals awaiting review.

The NASA-IG determined that NASA had not strengthened its internal controls to account for the significant reduction in DCAA oversight of NASA cost-type contracts. The IG also concluded that NASA's reliance on DCAA is inhibiting the Agency's efforts to timely close out contracts.

To remedy these deficiencies, the IG recommended that NASA revise its FAR Supplement to allow independent public accounting firms to provide supplemental audit coverage for NASA contracts where DCAA cannot be responsive to NASA's need for an audit. This change would be consistent with what other Agencies have done recently - i.e. rely on independent CPA firms to perform incurred cost audits. NASA agreed with the recommendation and provided a plan to revise the NASA FAR Supplement so as to allow outside firms to supplement DCAA audits.

It seems that not every Agency is enamored with DCAA's new risk-based approach to auditing - an approach that pretty much ignores any proposal under $5 million. That high of a threshold is too much in the eyes of some for protecting the Government's interests. This new plan of NASA's heralds yet more diminution of DCAA's workload and influence in the contract audit environment.