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Welcome to Apogee Consulting, Inc.

Researching DFARS

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Most of us would agree that the FAR is hard enough. But sometimes you have to go into the DFARS; and it turns out that is harder than it needs to be.

Recently I team-taught a class in England that was, essentially, an introduction to the FAR and the DFARS. A company had received multiple subcontracts from various US prime contractors, each of which contained a lengthy list of FAR and DFARS clauses—most of which had been incorporated by reference. Meaning that there was a clause number and a clause title and a date. And that was it.

An important exercise was looking up the clauses and their prescriptions. (For those who don’t know, the prescription tells the contracting officer when the clause is to be incorporated into a contract.) We also looked at the clauses themselves in order to identify whether the clause was a mandatory flow-down and, if so, then under what circumstances.

We taught the class that some DFARS clauses implemented a FAR clause while other DFARS clauses supplemented a FAR clause. (For your information, an implementation augments the FAR rule while a supplementation adds additional stuff not found in the FAR.) There are specific conventions that identify implementing clauses versus supplementing clauses, but you’re already bored so we’re moving on now.

In short, there was a lot of moving back and forth between the FAR and the DFARS, so as to see whether the FAR clause controlled, or if it had been modified somehow by the DFARS.

How did we do that? We did it electronically, using various websites.

Now, you might think that only one website would be necessary. Effective 30 September 2019, “Acquisition professionals and vendors will … have a single website to access and search the Federal Acquisition Regulation (FAR) and supplemental regulations.” And that website is www.acquisition.gov.

If you go to that site, on the very top of the page is a button marked “Regulations,” and clicking that button brings up all the various government acquisition regulations, from the FAR to the DFARS and even the military service supplements. The list of acronyms is amazing! Do you know what the DOLARS is? What about the LIFAR? Or the NRCAR? You get the picture.

Thus, if the site is to be believed, it’s a one-stop shop and one need go nowhere else. Yet we hardly used it.

Sure, as far as FAR research went, it was fine. But when navigating the DFARS, the site was lacking. It just didn’t work. The links between the DFARS clauses and their prescriptions didn’t. Or at least, they didn’t (link) consistently. The lack of effectiveness of the DFARS section of www.acquisition.com made me long for the days of farsite at hill.afb.org. That website worked and it was easy to navigate. But sadly, it’s no longer in existence.

So what did we do instead? We used the electronic Code of Federal Regulations website at www.ecfr.gov. Once you know that the FAR is Title 48 of the CFR and that the DFARS is Chapter 2 of Title 48, then you’re good to go. And the eCFR has really cool search features that turned out to be really useful.

We needed strong search features because of this little ditty buried in the DFARS clause 252.244-7000 (“Subcontracts for Commercial Items,” June 2013). That clause states:

  1. The Contractor is not required to flow down the terms of any Defense Federal Acquisition Regulation Supplement (DFARS) clause in subcontracts for commercial items at any tier under this contract, unless so specified in the particular clause.

What does that mean? It means that the only DFARS clauses that are mandatory flow-downs for subcontracts for commercial items are those clauses that expressly require flow-downs to subcontracts for commercial items. Let me give you an example. Suppose a clause states “Contractor must flow this clause down to all subcontracts.” That clause would not be a mandatory flow-down to a subcontract for commercial items because it does not expressly say “… all subcontracts, including those for commercial items.”

That’s right. “All” does not mean “all.”

Right. That blew my mind as well. But there you go.

I know, you’re thinking I’m crazy. Here’s an example of what I’m talking about. If you look at the DFARS clause 252.229-7014 “(Taxes-Foreign Contracts in Afghanistan,” December 2015) you see this clear direction to contractors that have received contracts that incorporate that particular clause: “(e) The Contractor shall include the substance of this clause, including this paragraph (e), in all subcontracts, including subcontracts for commercial items.” (Emphasis added.) If you see that direction, then you know the clause is a mandatory flow-down for subcontracts for commercial items. If you don’t see that, then the clause is not a mandatory flow-down.

If you think this is crazy hard (and you should), you should have seen the faces of the British folks we were training. (It took a couple of days, but they all got it in the end.)

Fortunately, we had the eCFR site so we could search for the clauses that needed to be flowed-down. Because if we had relied on the www.acquisition.gov site for the training, it would have been impossible.

Last Updated on Wednesday, 15 January 2020 19:57

Good-Bye 2019, We Hardly Knew Ye

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Last blog post for the year, and what a year it’s been.

There were eight Federal Acquisition Circulars (FACs) published. They included both proposed and final rules. In addition, there were several proposed and/or final FAR revisions published outside of the official FACs. Looking back, not many of the rules—whether proposed or interim or final—seemed especially significant. The definition of “commercial item” was expanded. The prohibition on obtaining certified cost or pricing data was restricted (but not for all agencies). Procurement of telecommunications equipment from Huawei Technologies Company or ZTE Corporation was prohibited. In summary, not a particularly eventful year.

DCAA published three Memoranda for Regional Directors (MRDs), continuing its unfortunate trend of hiding a lot of its audit guidance behind agency firewalls. However, what was published contained potentially significant changes to how DCAA uses materiality in its audits of contractor final billing rate proposals (aka incurred cost submissions). In addition, DCAA continued to build its “Selected Areas of Cost Guidebook” (which replaced what used to be Chapter 7 of the Contract Audit Manual); and DCAA also revised quite a few of its audit programs—most notably the 11070 audit program for performing Accounting System audits. Thus, it’s not fair to judge DCAA solely on its output of MRDs; one should strive to look at the total output.

Speaking of DCAA output, we’ve devoted a few recent blog articles to discussing DCAA productivity. In Government Fiscal Year 2019 (which ended 30 September 2019), the audit agency examined $365.2 billion using procedures that resulted in a GAGAS-compliance audit report. If we subtract out audit reports related to audits of contractor proposals, that figure drops to $246.3 billion. (Since the audit agency only issued audit reports in 26 percent of the assignments it completed, we can infer that roughly $950 billion was examined in non-proposal audits, in total).

Of the $246.3 billion that was reported upon, about $1.94 billion was questioned in an audit report (a figure that excludes “funds put to better use,” which is how DCAA reports findings related to proposal audits). Thus, DCAA questioned less than one percent of all dollars examined.

How did Apogee Consulting, Inc. fare in 2019? Let’s recap.

  • 51 blog articles published (counting this one)

  • 2 textbooks edited for ThompsonWest/LexisNexis

  • 1 six-week adult education class created and taught

  • 1 presentation for the Society of Corporate Ethics and Compliance

  • 1 presentation for the Association of Government Accountants

  • 1 presentation for the National Contract Management Association

  • Participated in roundtable discussion at the Rocky Mountain Compliance Conference

  • Participated in roundtable discussion at the BDO/Deltek Government Contracting Seminar in San Diego

  • 1 article drafted for publication (will be submitted in January)

  • Testified in an arbitration proceeding

Thus, while blog article production fell precipitously, we made up for it in other areas.

Looking forward to 2020, we know we will be editing the two textbooks again. We have submitted a proposal to SCCE for another presentation. We expect to teach at SDSU once again. Our first 2020 engagement starts January 6th, and we hope to start another major project in late January/early February. We predict 2020 will be another busy year.

Here’s hoping your 2020 is as rewarding as we expect ours to be.


Business System Stuff

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It seems that everybody is talking about business system audits/reviews these days. (For the record, DCAA performs audits and DCMA performs reviews.) Now that DCAA has “caught up” with its backlog of audits of proposed final billing rates, it has reportedly turned its attention back to the more traditional audit areas: Cost Accounting Standards, defective pricing, and business systems. Thus, many people will tell you that your risk in those areas has increased.

But it hasn’t. Not really.

DCAA has always performed some level of CAS, defective pricing, and business system reviews. And DCMA has never stopped performing those reviews. So your company’s risk has always been there, though of course DCAA’s recent strategic changes increase the likelihood that your company will be the recipient of one of those reviews.

What is DCAA doing differently?

Two main things: (1) creation of Headquarters “Truth in Negotiations” audit teams that do nothing but defective pricing audits, and (2) creation of Regional Business System teams that do nothing but audits of Accounting, MMAS, and Estimating Systems.

It’s too early to see the results of those changes but, anecdotally, we know that audits are on the increase. Further, as DCAA does not track its business systems audits separately from its other audits, the official statistics don’t tell the whole story. But we do have statistics on defective pricing and CAS audits:




As the charts above illustrate, it won’t take much of an increase to (say) double or even triple the number of reports that DCAA will be issuing.

Back to Business Systems. While there are not statistics we can find regarding the number of audits/reviews performed, we did find some statistics about system status. What we came across was dated 01 November 2019 – about six weeks ago as this is being written.

As of that date:

  • There were 30 Accounting Systems that had been officially found to be inadequate out of 3,751 evaluated

  • There were 3 MMAS that had been officially found to be inadequate out of 313 evaluated

  • There were 38 Estimating Systems that had been found to be inadequate out of 709 evaluated

Looking just at those three Business Systems (which are the ones that DCAA takes the lead in auditing) we can see that the Estimating System audits are the riskiest. Obviously, the Accounting System audits are the most important; but you are more likely to suffer an Estimating System disapproval. The statistics indicate that you have less than a one percent chance of having your Accounting System found to be inadequate but you have a greater than five percent change of having your Estimating System found to be inadequate. All other things being equal, of course.

A similar analysis on the DCMA-led Business Systems indicates that Purchasing is the riskiest. Forty-six Purchasing Systems have been found to be inadequate out of 876 reviewed; meaning that you have about a five percent chance of having your system found to be inadequate when DCMA performs a review. Both EVMS and Property Systems have a less than one percent inadequate-to-evaluated ratio.

That doesn’t mean you can relax and focus only on your Estimating and Purchasing Systems; but it does tend to indicate that those systems fail reviews at a much higher rate than the others.

What should you be doing about the situation?

We recently spoke at a compliance conference and offered this advice

  1. Review your contracts and identify which contracts have which business system DFARS clauses

  2. If you have any contracts with both an individual business system clause AND the DFARS general Business System clause (525.242-7005) then your company is subject to payment withholds when a business system is found to be inadequate.

  3. For each business system you are required to maintain in an acceptable manner (as defined by the individual business system clause), you need to develop a compliance strategy. The compliance strategy should include:

    1. Clear delineation of roles and responsibilities. Who is the individual who is responsible and accountable for the adequacy of the business system?

    2. Ensuring that a system description exists and that is it current and complete

    3. Ensuring that system policies, procedures, and instructions are well-documented

    4. Development of a self-governance approach, including transaction testing to provide assurance that employees are complying with expectations

  4. Many companies perform mock audits in preparation for an official government audit/review. For companies that lack resources, an outside firm is often hired.

The above steps can be performed by companies of any size. The same approach can be taken with respect to CAS and defective pricing audits—i.e., first identify the contracts that have the clauses and then figure out how you will comply with the clauses’ requirements.

This approach won’t guarantee that you will pass a government audit/review, but it will increase your chances of doing so.

Last Updated on Thursday, 19 December 2019 18:27

DCAA Statistics

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As we come to the end of 2019, I first wanted to thank readers for their patience. This has not been the most productive year as far as blog posts are concerned. In fact, it’s been the least productive in the 10 years the blog has been active. That’s not to say that we haven’t been productive in other areas, but focus on those other areas has meant that blog output has suffered. So thank you for hanging in there.

Now: to the blog post.

Over the past 10 years, the most popular articles have always been about the Defense Contract Audit Agency. Many people seem to be interested in what we have to say about DCAA. Contractors, contracting officers, and even DCAA auditors themselves seem to want to learn more about our thoughts on what DCAA is up to and how the audit agency is doing.

From time to time, we publish DCAA statistics. You can see the statistics manifested in the previous two blog posts. Where do those statistics come from? They come from official government publications—primarily the Department of Defense Office of Inspector General’s Semi-Annual Report to Congress, and from DCAA’s own Annual Report to Congress. We have been tracking audit-related statistics for many years and now have 13 years’ worth, which makes for interesting trend analysis.

Let’s look at those trends.

First, audit reports. Audit reports mean that contractors have to respond. Audit reports mean that contracting officers have to disposition and decide whether or not to sustain. Audit reports can lead to disputes and litigation. The following chart shows audit reports by type by year.


An interesting thing happened circa 2010. DCAA started tracking a metric called “assignment completed”—which meant that a certain number of assignments were completed without issuing an audit report. Typically, those assignments were closed via a Memorandum (either to the contracting officer or to the DCAA’s files). A completed assignment is what you get when DCAA chooses not to audit your proposal to establish final billing rates (aka incurred cost submission). A completed assignment is what you get when there are no findings and the exit conference is via telephone. As a rule, contractors like completed assignments with no audit report. So do DCAA auditors, as it means it’s harder to find GAGAS violations. We’re sure it was a coincidence that DCAA starting moving to the “completed assignment” metric at about the same time the audit agency was coming under heavy criticism for GAGAS violations.

The following chart shows the percentage of assignments completed without an audit report since DCAA started tracking that metric.


As you can see from the chart above, in GFY 2019 nearly three-quarters (74%) of all DCAA assignments were completed without issuance of a formal audit report.

Another interesting metric is the value of dollars examined by DCAA auditors each year. The following chart compares dollars examined against staff years. We don’t have GFY 2019 staffing yet (it’s typically published in March of the following year) so the chart tracks only through 2018.


The chart above shows that DCAA was at its most productive in 2008, when about $113 million was examined per auditor (or per audit staff year, depending on what data was being reported). On the other hand, that focus on productivity was blamed for audit quality failures. (There was no evidence showing that was the case, mind you. But that’s what people said and that’s what Congress glommed on to.) Consequently, audit productivity fell as the agency focused on quality. (Which tended to manifest as a lot of management reviews.) According to DoD OIG reports, audit quality did not significantly increase as the result of the focus on process instead of productivity. Nonetheless, the data indicate a dramatic loss of productivity.

At about the same time, audit staff headcount (or staff years) started to vary. GFY 2018 audit headcount is about 10 percent below the highs reflect in 2010 and then again in 2014. (Again, the data is a bit fuzzy because sometimes it’s reported as headcount and other times as staff audit years, which we assume includes audit hours performed on overtime. But you get the picture.)

It is only recently – GFY 2018 – that auditor productivity has returned to 2008 levels. In GFY 2018, auditors were examining about $99 million per head. Since we don’t have GFY 2019 staffing levels, we can’t conclude anything, but we can state that total dollars examined in GFY 2019 was lower than in 2018 ($365M vs. $410M). Consequently, unless headcount dropped significantly, it seems likely that GFY 2019 productivity will be below GFY 2018 levels.

What does this all mean?

Well, it may mean nothing. Or it may mean that DCAA’s strategy of completing assignments without issuing an audit report (but counting those assignments as dollars examined) may lead to a perception of increased auditor productivity.

Thus, as Apogee Consulting, Inc., blog productivity has declined in recent years, it appears that DCAA’s audit productivity is on the increase. Maybe our strategy should change to align with DCAA’s strategy? If so, then we will start posting blogs with no content and then claiming a completed blog post.

Yeah, that’s the ticket.

Last Updated on Tuesday, 24 December 2019 11:20

DCAA Audit Sustention

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You know—if you’ve been reading this blog for any significant length of time—that one of the most important metrics that indicates the quality of DCAA audit findings is the contracting officer sustention rate. That is the percentage of DCAA auditor questioned costs (QC or sometimes CQ) that survives negotiation with the contractor. Those negotiations are part of the indirect rate settlement process—i.e., the process by which billing rates become final billing rates. (See the Allowable Cost and Payment clause, 52.216-7, for details.) Final billing rates are used for preparing final invoices on flexibly priced contracts and thus are a key element of contract close-outs.

You know about the importance of that metric. Importantly, DCAA management knows about it as well. As we’ve been asserting for some time, pressure is being exerted on contracting officers to sustain DCAA QC, so as to indicate that auditors are doing a better job than historically has been the case. The chart below illustrates the fall of sustention rates, a plateau at about 30%, then a sharp increase as pressure has been exerted in the past few months.

Chart 1 – Sustention rates by Six-Month Increment GFY 2013 – 2019


Source: DoD OIG Semi-Annual Report to Congress, Appendix F

Note that DCAA’s sustention rate is still below 40%, but we can project that it will break that level in the near future as pressure continues to be applied to DCMA contracting officers to sustain DCAA QC audit findings.

Evidence of the pressure being applied is more than anecdotal (though there’s plenty of anecdotal evidence). The evidence is found in the DoD OIG audit reports, pointing the finger at DCMA contracting officers for failing to sustain DCAA audit findings. In fairness, the reports don’t actually say that. What they say instead is that “DCMA contracting officers did not document adequate rationale for disagreeing with $219 million in DCAA questioned costs” and that “contracting officers did not adequately justify why they reimbursed the [QC] to the DoD contractors.”

Let’s look at DoD OIG Audit Report No. DODIG-2020-036, dated 30 November 2019.

The DoD OIG auditors selected 21 DCAA audit reports issued between October 1, 2015, and March 18, 2018. In those 21 audit reports, DCAA questioned (in the aggregate) $750 million. With respect to two of the 21 selected audit reports, the OIG auditors found that –

DCMA contracting officers did not document adequate rationale for disagreeing with DCAA questioned costs totaling $219 million. DCAA primarily questioned the costs based on the contractor’s failure to provide supporting documentation for the claimed costs, as FAR 31.201-2, ‘Determining Allowability,’ requires. The DCMA contracting officers documented one or more of the following reasons for not sustaining DCAA’s recommendation to disallow the questioned costs:

  • The required time periods for the contractor to retain any of the records had lapsed.
  • The questioned costs in the audit report were identical to those disputed before the Armed Services Board of Contract Appeals (ASBCA), which rendered an opinion against the DCAA questioned costs.
  • No action on the audit report was required because DCAA had disclaimed an audit opinion.

However, none of these reasons adequately justify the contracting officers’ decision not to sustain the DCAA questioned costs.

The OIG auditors found that the DCMA contracting officer’s rationale for not sustaining the DCAA auditors’ QC was invalid. But before we discuss the OIG’s rationale, let’s take a moment and point out that the 21 audit reports selected all had one thing in common: in each of those 21 audit reports, DCAA had disclaimed an opinion.

What does that mean? As stated in the OIG audit report, “DCAA disclaims an opinion when it is unable to perform all audit procedures considered necessary to obtain sufficient appropriate evidence and conclude whether any noncompliances are material and pervasive.” Thus, in these 21 audit reports, DCAA expressly stated that the auditors were unable to obtain sufficient evidence to support their opinions.

That situation didn’t keep DCAA from reporting those opinions anyway.

As the OIG audit report noted, “when DCAA disclaims an opinion, it still has an obligation to report to the contracting officer any proposed costs that it determines are not allowable on Government contracts.” Let’s look at that assertion.

The DCAA Contract Audit Manual (CAM) states, at 2-102.2—

f. A disclaimer of opinion is issued when there are scope restrictions and the departures from GAGAS requirements are so significant that the examination has not been performed in sufficient scope to enable the auditor to form an opinion. A scope restriction may be imposed by the contractor, the requestor, or by other circumstances such as the timing of the work or the inability to obtain sufficient evidence (see 10-208.5).

But there’s more. Looking at CAM 2-302.3 (“Evidence”) we find—

The auditor must obtain sufficient evidence to provide a reasonable basis for the conclusion expressed in the report. This requires that sufficient procedures be performed to test the contractor’s assertion to provide reasonable assurance that unallowable costs and other noncompliances with applicable Government laws and regulations are identified.

Thus, if the DCAA auditor did not obtain sufficient evidence to form a reasonable basis for a conclusion, then the audit did not comply with Generally Accepted Government Auditing Standard (GAGAS) 6.04b and the opinion must be disclaimed. But does that mean DCAA must still report to the contracting officer any costs it believes to be unallowable? Not exactly.

What the CAM states (at 10-208.7) is that, when disclaiming an opinion, “the audit report should describe the nature of any material noncompliance and its actual and potential effect on the subject matter in a ‘Report on Other Matters’ appendix.” Suggested language includes the phrase “Reporting noncompliances do not represent an overall opinion on the subject matter under audit but are fully developed findings based on substantiated evidence from the limited procedures applied during the performance of the audit.” Further, when reporting such other matters, auditors are directed to—

  • Not use the structured note format in the appendix because audit evaluation section describes the audit procedures and could be misleading.

  • Avoid summary exhibits showing a difference or audit recommended column.

  • Avoid using the term ‘questioned’ costs.

  • Avoid presenting calculated rates based on the report findings.

These are the circumstances presented to DCMA contracting officers in the 21 audit reports selected for review. The contracting officers were not presented with questioned costs. They were not presented with the impact of the findings on the contractors’ submitted indirect rates. And they were not presented with these findings within the body of the audit report, but instead within an appendix to the audit report entitled “other matters.”

Nonetheless, 19 of the 21 audit reports were dispositioned to the OIG auditors’ satisfaction. With respect to the two audit reports that were not dispositioned adequately (in the auditors’ judgment), the OIG auditors found some interesting rationales to support their criticism.

The OIG audit report noted that “DCAA primarily questioned1 the costs based on the contractor’s failure to provide supporting documentation for the claimed costs, as FAR 31.201-2, ‘Determining Allowability,’ requires.” However, when the contracting officer(s) failed to sustain costs that were questioned on that basis, using the rationale that the contractor did not have an obligation to retain its records past the FAR 4.7 required time period, the OIG auditors disagreed, stating, “Regardless of the minimum record retention time periods specified in the FAR, the contractor had an obligation to support its costs claimed on Government contracts.”

The audit report states—

The contracting officer … did not sustain the $209 million in questioned subcontract costs. The contracting officer documented in his negotiation memorandum that the 4-year period prescribed by FAR Subpart 4.7, ‘Contractor Record Retention,’ for retaining subcontract records had lapsed because the costs were incurred 7 years ago. Therefore, he concluded that it would not be fair or reasonable to sustain the $209 million in DCAA questioned costs and recoup the costs from the contractor. We disagree with the contracting officer’s decision to not sustain the DCAA questioned costs of $209 million. The record retention periods outlined in FAR 4.7 identify the minimum amount of time that the contractor must maintain records to support its claimed costs.

Actually, that is not correct. FAR 4.7 establishes that the contractor’s obligation to support its claimed costs ends when the FAR-specified record retention period expires. The government’s audit rights continue (often beyond that period) but the contractor’s obligations to retain records do not. So that’s wrong. The contracting officers were correct.

Let’s support our assertion a bit, with some selected quotes from the FAR:

This subpart provides policies and procedures for retention of records by contractors to meet the records review requirements of the Government. The purpose of this subpart is to generally describe records retention requirements and to allow reductions in the retention period for specific classes of records under prescribed circumstances. This subpart applies to records generated under contracts that contain one of the following clauses:

(1) Audit and Records-Sealed Bidding (52.214-26).

(2) Audit and Records-Negotiation (52.215-2).

The retention periods in 4.705 are calculated from the end of the contractor’s fiscal year in which an entry is made charging or allocating a cost to a Government contract or subcontract. If a specific record contains a series of entries, the retention period is calculated from the end of the contractor’s fiscal year in which the final entry is made. The contractor should cut off the records in annual blocks and retain them for block disposal under the prescribed retention periods.

The contractor shall retain the records identified in 4.705-1 through 4.705-3 for the periods designated, provided retention is required under 4.702 . Records are identified in this subpart in terms of their purpose or use and not by specific name or form number. Although the descriptive identifications may not conform to normal contractor usage or filing practices, these identifications apply to all contractor records that come within the description.

Thus, based on the plain language of the FAR, it is clear that the OIG auditors’ interpretation is wrong. The retention periods do not establish a minimum, but instead establish a maximum, beyond which a contractor is not required to retain its records. And the retention requirements expressly and specifically pertain to contracts that contain the 52.215-2 audit access clause. That incorrect interpretation led to an inapposite criticism of the contracting officer, in our view.

Similarly, when the OIG auditors criticized another contracting officer for failing to sustain a position found in a disclaimed opinion, we don’t think much of that OIG rationale either. The OIG audit report stated—

The contracting officer … stated in the negotiation memorandum that she did not sustain the $3 million in questioned costs because she believed she was not required to take any action on DCAA audit reports that disclaim an audit opinion. In our interview with the contracting officer, the contracting officer stated her opinion that DCAA did not perform an audit and that the DCAA audit report ‘was a nothing report.’

The DCMA contracting officer failed in her obligation to take appropriate action on the DCAA questioned costs, as FAR 42.705-1(b)(5)(iii) requires. The contracting officer’s position is flawed because:

  • although DCAA disclaimed an opinion, the contracting officer had a responsibility to take action on the costs that DCAA stated did not comply with the FAR; and

  • the contracting officer did not follow the negotiation process outlined in FAR 42.705-1(b)(4). The contracting officer did not maintain evidence that she obtained adequate documentation for the contractor’s costs.

Well, you know. We here at Apogee Consulting, Inc., disagree with the OIG positions above. As we stated above, there were no questioned costs and the audit report with a disclaimed opinion was indeed a “nothing report” to which the contracting officer was not required to give any deference. In particular, we strenuously object to the notion that—somehow—a contracting officer is required to reperform the failed DCAA audit procedure and “obtain adequate documentation for the contractor’s costs” if the non-questioned costs will not be sustained.

Fundamentally, what the DoD OIG audit report fails to grasp is that the contracting officer is charged with using “independent business judgment” to resolve disputes. The FAR states (at 33.204) that “The Government’s policy is to try to resolve all contractual issues in controversy by mutual agreement at the contracting officer’s level.” If the OIG auditors had there way, no contracting officer would ever deviate from the original DCAA audit position and we would all see a skyrocketing in the number of formal disputes and litigation—in direct opposition to the FAR directive.

But while we vehemently disagree with the DoD OIG’s position(s), the DCMA Director was just fine with them. The audit report stated—

The DCMA Director agreed with the recommendation and will begin a review of the contracting officers’ decisions not to sustain the questioned costs in the two DCAA audit reports. The Director stated that the review will also determine if the contracting officers reimbursed costs that were not allowable on Government contracts. Subsequent to receiving the Director’s written comments, a DCMA senior official also clarified to us that DCMA will take reasonable steps to recoup any unallowable costs identified by the review. Additionally, the senior official also stated that DCMA will assess whether action should be taken to hold the contracting officers accountable for not sustaining any DCAA questioned costs determined to be unallowable.

Way to support your troops, Admiral.

1 Let’s note the misuse of the term “questioned” in this context, since DCAA will not question costs when the audit opinion is disclaimed. When the OIG audit report states “contracting officers must take appropriate action in response to DCAA questioned costs, even though DCAA disclaims an audit opinion,” it is wrong. There were no questioned costs, since the opinions were disclaimed. It would have been nice of the DoD OIG auditors to get that nuance correct when criticizing the DCMA contracting officers.

Last Updated on Tuesday, 17 December 2019 17:19

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Effective January 1, 2019, Nick Sanders has been named as Editor of two reference books published by LexisNexis. The first book is Matthew Bender’s Accounting for Government Contracts: The Federal Acquisition Regulation. The second book is Matthew Bender’s Accounting for Government Contracts: The Cost Accounting Standards. Nick replaces Darrell Oyer, who has edited those books for many years.