Goodbye DCAA?
GovExec.com has an interesting article telling its readers what readers of this blog already knew: that Congress wants to have DCAA compete with private CPA firms for audit work. We discussed the proposed game-changing legislation here.
The GovExec article attempts to be balanced, but the weight of the article leans against the legislation as drafted. For example, most of the quotes are from those who think the legislation is a bad idea, including (of course) quotes from Ms. Anita Bales and from the Pentagon itself. It’s ironic how the same folks pleading for innovation in technology for the warfighter don’t want to see any innovation in the audits of the innovators.
Certain members of Congress also had reservations, according to the article. In particular, Congressman Adam Smith (D-Washington), thought a better approach would be “to give the DCAA director authority and tools to address the backlog, yet hold her accountable for progress. ‘That flexibility could be the ability to hire private contractors with appropriate oversight or the ability to hire civil servants expeditiously,’ he said.”
Congressman Smith was careful not to specify what that additional authority would look like, just as he was careful not to specify exactly how the SES-level Director of DCAA would be held more accountable than she already is.
Similarly, the Project on Government Oversight (POGO) posted a blog article weighing-in against the legislation. (Welcome back, Nick!) The article is actually a rather nice recap of why audits matter to taxpayers, but it is fatally flawed by a lack of first-hand experience. For example, one example used to show the importance of DCAA audits is the case of Centerra Services International. (We used that case to discuss CAS 402 in this article.) The POGO blog article implies that the discovery of Centerra’s alleged misbilling originated from a DCAA audit finding; whereas the truth is that the origination was a whistleblower (qui tam) suit and DCAA had nothing to do with it. Contrary to the blog post’s assertion, this example is evidence of a lack of DCAA audit quality, since it took a whistleblower to bring the situation to the government’s attention.
Further, the POGO blog article endorses DoD’s policy position that DCAA is cheaper and more efficient that independent CPAs, by asserting that DCAA’s multiple audits create synergy. It states: “DCAA’s other auditing work with the same contractor and on the same contracts benefits from its incurred cost audits, and vice-versa. For instance, DCAA conducts audits of contractors’ billing, accounts, and internal control systems. The insights DCAA gains from those audits assists DCAA when it audits a contractor’s incurred costs.” Those of us with first-hand experience know that used to be the case, but that it stopped being true when Pat Fitzgerald took over and instituted an “every audit needs to stand alone” policy. Currently, DCAA auditors generally do not benefit from “insights” gained from other audit findings. Every risk assessment seems to result in the highest assessed risk, regardless of a lack of findings from prior audits.
The POGO blog article ends with DCAA’s chart showing a trending reduction in its embarrassingly large backlog of incurred cost audits. Left unmentioned is what readers of this blog already know: most of that reduction has come from calling audits “complete” without actually performing the audit procedures. Just as DCAA now completes nearly three-quarters of its “audits” without actually issuing an audit report or expressing a written conclusion that might be subject to GAGAS, DCAA also “completes” many “audits” without auditing a single taxpayer dollar.
And yet POGO, like Congressman Smith, thinks the status quo is just fine. The legislation’s attempt at radical reform should be repealed, according to them.
But there are other opinions.
The GovExec article has quickly gathered a number of comments, some pro and some anti the proposed legislation. One central point of contention has been whether or not DCAA audits are “inherently governmental.”
“Jack” says yes, but no. He posted “I agree it's inherently government but DCAA has proven it's inherently incompetent. DCAA has made Incurred cost audits impossible to do. No one with any sense of worth or common sense would want to work as an auditor. It's a nice gig for the layers of management who are never held accountable for anything. Common sense left the door years ago.”
“BKHCPA74” agreed, posting “… Outsource those babies! … Inherently governmental is a lie! Just saying that to keep the jobs! Outsource it all! I worked for DCAA and such a waste of taxpayer dollars. I could get quality audits out the door in a fraction of the time and better work! I am so fed up of the lie! Audits are NOT inherently governmental!! Too many levels of review and changes made that are majority wordsmithing that goes back and back for months wasting taxpayer dollars!!! If the public only knew the truth! It's quite sad really!”
“Modellsx” has a more balanced posting, writing “DCAA has many flaws, the main one being paralysis by analysis. But this is inherently governmental and private CPA's would not be protecting the taxpayers, they would be protecting the contractors.” (There was more to this post but we’re quoting the best bit.)
“Dennis J. Tisdale” posted “DCAA is held to a very high standard since 2009. It is almost impossible for a local office to issue a report because of the layers of review that the audits receive. Allowing only the Resident Auditor or Branch Manager to sign reports has created a totally unmanageable backlog in getting reports issued. The real problem that surfaced in 2009 was never addressed by the new policies. Managers were always working to beef up their productivity metrics and making the metrics harder to meet. This was the underlying cause of the problems.”
“Jack” and “BKHCPA74” started an illuminating thread. We’re going to quote at length because readers need to understand the insight that first-hand experience brings.
Jack:
DCAA is beyond fixing. The agency is so broken that the only way to fix it, is to blow it up. I worked at DCAA for many years but left because the insanity and dysfunction took a toll. Near the end of my career there, I wrote then Director Pat Fitzgerald an email on my DCAA email outlining the problems in detail. Within 10 minutes he responded and asked me to call him at an appointed time. I called and explained that the agency was ruled by the fear of being wrong and it had left everyone in a total state of paralysis for doing anything. After listening to me for 20 minutes, he agreed with everything I said and concluded by saying ‘What can I do to fix this?’ … Thank god I escaped and got a job at DCMA as a cost price analyst sitting 50 feet from where I used to sit. I now do the jobs DCAA used to do and more. Seven of my ex DCAA co-workers joined me in the exodus from DCAA. I love my job at DCMA because what I do is review proposals not document risk all day. It's actually fun to do work. DCAA can't save itself because it's culture is totally broken. They will never ever get the work done. My last supervisor at DCAA was more concerned that I claimed 61 miles to visit a contractor, yet he Googled it and got 60 miles. I was called to his office to explain what I did. This is the DCAA mentality!!!!!!! This supervisor was considered one of DCAA's best. Sad, sad, sad. They can't see the Forrest through the trees. Everyone knows DCAA is a joke.
BKHCPA74:
I have an audit practice, am a CPA, CFE and have over 15 years of financial statement, contracting and governmental audits! I worked as a senior auditor for DCAA at Lockheed for 3 years on F-35 program and have many years of Federal contracting experience. If the DoD privatizes the work, I am hiring. I have performed incurred cost, forward pricing, provisional billing rate, all kinds. I am service disabled vet and could lowball the competition. Hit me up for work! Business is good!
What’s our point of view? (Note that we are not in the audit business and have nothing to gain from the legislation, if passed.) Our recent article on DCAA audit quality and productivity statistics indicates that things are getting worse, not better. Something must be done. If radical change is what’s required, then so be it.
Subcontractor Price Reasonableness
We hear it from many clients (and potential clients): DCMA is cracking down on prime contractors that fail to obtain contractor cost or pricing data (or “certified” cost or pricing data) where warranted, or that fail to perform a rigorous cost or price analysis on the subcontractor’s proposal using that cost or pricing data, or that fail to adequately document subcontractor price reasonableness.
It’s a thing that can drive a prime contractor crazy.
It’s not like we haven’t discussed this notion before. In 2012, we devoted an entire series of articles to the topic. Heck, in February 2015 we spoke in front of a joint NCMA/AGA audience on nothing else but this topic. But those articles and presentations focused primarily on how DCAA might question otherwise allowable subcontractor costs for a failure to adequately document price reasonableness. What’s different today is that we are learning that DCMA can also use prime contractor failures in this area to assert significant deficiencies in one or more of the prime contractor’s business systems.
Wholly aside from having subcontractor costs questioned, a failure in one of the areas listed in the first paragraph can result in significant deficiencies in the prime contractor’s Estimating or Purchasing System—or both. This is obviously a less-than-optimal result.
We sketched-out some of the requirements associated with obtaining subcontractor cost or pricing data in our recent two-part article entitled “TINA Sweeps and Defective Pricing.” Just to recap some of the prime contractor’s responsibilities in this area:
Where required by contract clause, the subcontractor (and all subcontractors at lower tiers that meet the requirements) must provide certified cost or pricing data to the prime contractor. Where not required by contract clause—but necessary in the eyes of the prime contractor’s buyer—the subcontractor must provide (uncertified) cost or pricing data to the prime contractor. As we wrote in the two-part article:
The prime contractor is responsible for standing in the government’s shoes and obtaining certified cost or pricing data (in the required format) from any subcontractor whose pricing action trips the threshold at 15.403-4—before award of that subcontract. The certified cost or pricing data is to be submitted in the format of FAR Table 15-2, and the prime contractor is required to obtain a CCCPD from the subcontractor, certifying that the cost or pricing data was accurate, complete, and current as of the date of price agreement.
Readers will note that the above has to take place before award of the subcontract. But the subcontract award will likely take place after award of the prime contract, and so that timing won’t work for the prime contractor’s initial proposal to its government customer. We also wrote in that article—
If the subcontract value is greater than 10% of the prime’s (or higher tier subcontractor’s) contract value then the certified cost or pricing data becomes part of the prime’s cost or pricing data, and must be submitted to the government. Further, the prime contractor (or higher tier subcontractor) is also responsible for performing cost or price analysis on the data it receives from its subcontractors. (Remember that the prime also has to award its subcontracts at fair and reasonable prices.) That analysis becomes cost or pricing data and may have to be submitted to the government (and updated!) as part of compliance. (See 15.404-3(b) and (c).)
Thus, entirely apart from the requirement to award subcontracts at fair and reasonable prices, the prime (or higher tier subcontractor) must comply with the requirement to obtain (certified) cost or pricing data ahead of the subcontract award—often well ahead of the subcontract award—and analyze it and reach a conclusion and provide the (certified) cost or pricing data as well as the documented conclusion to the government customer as part of the prime contractor’s submission of its own (certified) cost or pricing data.
Therein lies the problem. It’s a timing thing. On one hand, the prime wins the contract award and then, as part of prime contract performance, enters into fact-finding and analysis and negotiations with the subcontractor—a process that culminates in a subcontract award at a well-documented fair and reasonable price. But on the other hand, the prime obtains (certified) cost or pricing data from the subcontractor as part of the proposal preparation process, right in the middle of “crunch time” when everybody is working late and on weekends to get that proposal properly priced, reviewed by Red and Green (and the other color) Teams, and submitted before the date and time specified by the customer. (Because “late is late” and nobody wants to tell the boss that the company just spent a million bucks of B&P funds on a proposal that wasn’t even reviewed because it was submitted one hour late.) Right there in the middle of “crunch time” somebody (or some bodies) will have to take the time to work with the subcontractor, not only to obtain a good subcontractor proposal, but also to obtain (certified) cost or pricing data. And then somebody (or some bodies) have to take the time to review that (certified) cost or pricing data, and analyze it, and determine whether the subcontractor’s proposed price is fair and reasonable or, if not, decide what the fair and reasonable price should be, and document that conclusion, and create a package, and feed it to the proposal preparation team in time for the proposal to be reviewed and submitted. (And then continue to update the package throughout prime contract negotiations.)
That’s no easy tasking. To say the least.
And remember, the exact same activity is supposed to be happening throughout the supply chain, down and down throughout all tiers, so long as the proposed supplier activity trips the FAR thresholds.
And this already challenging situation is made even more challenging when a subcontractor (at any tier) doesn’t want to cooperate. Perhaps they believe their (certified) cost or pricing data is proprietary. Or perhaps they are a subcontractor today but a competitor tomorrow; and they don’t want today’s prime getting ahold of their cost information for future use as a competitor. (John P. calls companies in that situation “frenemies” or “competimates”.) Often, the subcontractor is willing to provide the (certified) cost or pricing data, just not to the prime contractor. They will provide it directly to the government. (Which is fine.) The point is, there may be very legitimate reasons why the subcontractor doesn’t want the prime to see its (certified) cost or pricing data—which makes performing a cost or pricing analysis on the nonexistent (or severely redacted) data virtually impossible.
In such cases, DCMA expects the prime contractor (or higher tier subcontractor) to document the unwillingness to provide (certified) cost or pricing data, and make a formal request to the contracting officer for an “assist audit” by DCAA. DCMA expects the refusal to be documented on the subcontractor’s letterhead; we are told that emails are not acceptable. DCMA expects the notification to the contracting officer and request for assistance to be documented on the prime contractor’s letterhead as well.
Now we all know that DCAA isn’t the agile, fast-moving audit agency that it was in the past. So it’s likely that DCAA will not be issuing an opinion on the reasonableness of the subcontractor’s proposed costs until well after the prime contractor has submitted its proposal. That opinion may not be issued until after prime contract price negotiations have been concluded.
That opinion may not be issued until after the prime has already awarded the subcontract. If you have awarded that subcontract before receiving the DCAA “assist audit” report, that’s going to be another problem with implications for the Purchasing System. Our suggestion: If you are going to issue the subcontract award prior to receipt of the DCAA audit report, make sure you include a “reopener” clause that permits the subcontract price to be adjusted, based on the DCAA audit findings.
Another problem that’s frequently encountered is that the subcontractor is a small business who can’t even spell “FAR” let alone prepare a (certified) cost or pricing data package in the required format for analysis. The small business may not have an accounting system that generates indirect cost rates. Or if the accounting system does generate indirect cost rates, the rates may be inflated because of unallowable costs. This is not so much of a problem at the proposal stage (because few small businesses will trip the 10% threshold). But it could well be a problem at the subcontract award stage, because there are many small businesses that will trip the $750,000 threshold. What to do?
The prime contractor is going to have to work with that small business to understand what is required, prepare and format it, and then review/analyze it. This is not a project that DCAA is going to perform. It involves knowledge transfer and training and looking at the subcontractor’s accounting system for potential gaps. It involves gathering the data, vetting it, and then reviewing/analyzing it. That’s not a DCAA function. Thus, the prime contractor (or higher tier subcontractor) is going to have to devote resources to the problem.
This is a “must do”. Failure to do so may result in an assertion that the Purchasing System has a significant deficiency.
Unfortunately, many prime contractors lack sufficient bandwidth. They have to look elsewhere. Sometimes they hire consultants to augment internal resources. Prime contractors have reached out to Apogee Consulting, Inc. in the recent past to perform that function (albeit with mixed success because some small businesses just do not want to be helped. See: “the Dunning-Kruger Effect” using the search feature on this website.) The point is: regardless of where those resources come from, they will have to be deployed to help the subcontractor, because a failure to do so could imperil the adequacy of the Purchasing System. Similarly, the necessary resources have to be deployed during the proposal preparation phase (when required), because a failure to do so could imperil the adequacy of the Estimating System.
If a contractor receives a notification of business system deficiency, then it is going to have to devote significant resources to resolving the issue(s). It is almost certainly going to have to develop and submit a Corrective Action Plan (CAP). It is almost certainly going to have to support increased government oversight activities in that area. All that effort takes time and resources.
Given that the resources are going to be deployed in any case, doesn’t it make more sense to deploy them upfront in the process, to proactively work with the subcontractor to address potential issues to prevent assertions of a business system deficiency, rather than wait for DCMA to assert a significant deficiency and then to react to the problem?
We think it does.
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DCAA Audit Results Disheartening
And once again we are back to tell you that DCAA’s productivity stats continue to fall, despite pressure from Congress.
This situation is an oft-repeated theme on this blog. DCAA audit productivity continues to fall and there is seemingly nothing that can be done about it, not even by Congress—who told DCAA to quit performing audit work for others until it can get its own house in order. DCAA either cannot or will not reform its audit procedures and review practices to get audit reports out the door and into the hands of users any faster. At this point, if productivity stats fall any further, we may as well call “game over” and find another function to assist contracting officers.
We’re talking about the latest DoDOIG Semi-Annual Report to Congress, covering the period October 1, 2016 through March 30, 2017. Appendices E and F discuss DCAA audit statistics for the period.
And boy, are they really not good statistics.
We are fond of comparing DCAA stats of today to those of yesteryear, the time before DCAA management created its unique interpretation of GAGAS and decided to implement multiple layers of review on every audit report. But we’re not going to do that in this article. Instead, we’re going to compare the first six months of GFY 2017 to the first six months of GFY 2016. We’ll perform a very simple year-over-year flux analysis.
Total number of assignments completed in Period 1, 2016: 5,057
Total number of assignments completed in Period 1, 2017: 4,634
Difference: 423
Percentage reduction in output: 8%
Total number of audit reports issued in Period 1, 2016: 1,480
Total number of audit reports issued in Period 1, 2017: 1,243
Difference: 237
Percentage reduction in output: 16%
Total dollars examined ($ millions) in Period 1, 2016: $96,807.2
Total dollars examined ($ millions) in Period 1, 2017: $95,354.1
Difference: $ 1,453.1
Percentage reduction in output: 1.5%
Total dollars questioned ($ millions) in Period 1, 2016: $3,224.4
Total dollars questioned ($ millions) in Period 1, 2017: $2,322.0
Difference: $ 902.4
Percentage reduction in output: 28.0%
To sum up, DCAA issued 16 percent fewer audit reports in the first half of GFY 2017 than it did in the same period last year, even though it examined roughly the same amount of costs in both periods. With respect to the audit reports it did issue, it questioned 28 percent fewer costs than it did in the same period last year. Looking beyond audit reports, DCAA “completed” eight percent fewer assignments than it did last year.
One bright spot is that contracting officer sustention of post-award audit findings is steady year-over-year. The comparable 2016 sustention rate was 26 percent, and the 2017 sustention rate was 25.5%. So DCAA is holding steady at a sustention rate of just a hair over one quarter of its audit findings, meaning that contracting officers are non-sustaining roughly 75 percent of DCAA audit findings. How’s that for an audit quality metric?
All this despite continuous internal reforms, rejiggering of audit programs and procedures, and the clear Congressional message that the status quo is not acceptable.
Indeed, DCAA is not resting on the status quo: it is continuing to get worse in pretty much every single audit metric that matters.
Again, we could have compared GFY 2017 status to much older stats – say, GFY 2007. Trust us: the comparison would have been far less flattering to DCAA than the one we published.
Negotiations
If you do this business for any length of time, sooner or later you will have to negotiate with somebody.
If you are a contractor, you may have to negotiate with a government contracting officer. If you are a subcontractor, you may have to negotiate with the prime contractor’s buyer. If you are a government contracting officer, you may have to negotiate with a contractor.
If you want to do government contracting, you had better get used to the idea that you will have to sit down across the table from somebody (or perhaps some bodies) and try to reach an agreement about something. (The act of negotiating obviously is not confined to the government contracting environment; but that’s where we practice so that’s what we’re going to talk about.) Negotiations are endemic to the contracting environment.
Yet in our experience many upon many individuals not only lack knowledge and skills in the “art” of negotiating—but they are also deathly afraid of it.
In our experience, far too many people who are otherwise skilled buyers or contracting officers are afraid of negotiating. They are afraid of sitting across the table from the “other side” and entering into a give-and-take exchange of information and positions, with the aim of identifying and eliminating differences in those positions.
Which is too bad—because if you will not or cannot negotiate, then you are very much handicapped. Rather than being an active agent, you become the victim of a process that you are powerless to influence. And make no mistake: you are powerless because you have chosen to give up your power.
We see the impact most often with respect to contract close-out. Time and time again, we hear that subcontracts or Purchase Orders or even prime contracts cannot be closed “because we are waiting for final rates.” Bullshit. You do not need final indirect rates to negotiate a final price; you need the willingness to actually negotiate a final price. You need the willingness to understand the risks and mitigate them. You need the willingness to reach price agreement, understanding that a year (or many years) from now, you might learn that you didn’t negotiate the lowest price after all. You need the willingness to risk being wrong.
And most people are afraid of being wrong.
If you are in the government world, you are probably afraid of that peer review, or that IG review. If you are in the corporate world, you are probably afraid that your next promotion will be denied because of your “mistake”. All of which is also pretty much bullshit, because of things like MSPB and HR—and the fact that boldness should be rewarded rather than criticized.
Back to “final rates” for a minute: it is absolutely important for readers to understand that the regulatory requirement for (audited and negotiated and agreed-upon) final billing rates (per the contract clause 52.216-7) is a lot more narrow than many people think it is. First of all, with respect to subcontracts, we’ve already devoted an entire article to the topic. Establishing final billing rates is a matter completely between the prime contractor and its subcontractor(s); the government plays no official role. Thus, when anybody tells you they cannot close out a subcontract because they are waiting for “final rates,” feel free to find people with more knowledge and expertise—and courage—because you have the wrong people in that function.
Second, with respect to prime contracts, the regulations provide for “quick closeout” procedures at FAR 42.708. The regulations establish which contracts are eligible for quick closeouts, and then make it mandatory that the cognizant contracting officer actually use those procedures for qualifying contracts. The CO does not have a choice: quick closeout procedures must be used for qualifying contracts. (“The contracting officer responsible for contract closeout shall negotiate the settlement of direct and indirect costs for a specific contract, task order, or delivery order to be closed, in advance of the determination of final indirect rates set forth in 42.705, if – ….”) (Emphasis added.)
The Defense Contract Management Agency (DCMA) has taken a more permissive position. DCMA Memorandum #13-288 (9/18/2013) “authorizes Administrative Contracting Officers (ACOs) to close specific contracts prior to the establishment of indirect cost rates regardless of dollar value or the percent of unsettled direct costs and indirect costs allocable to the contract [provided that] the contractor has submitted the final certified indirect cost rate proposal for the contract under consideration that has been audited by the [DCAA] of the ACO received a Low-Risk Adequacy Memorandum from DCAA.”
The point is, in many circumstances you do not need to wait for “final rates” and anybody who tells you otherwise is mistaken. All you have to do is negotiate final rates with respect to the contract or subcontract is question, and then those rates become final and the price is established only for that contract.
But what about if DCAA comes along later and determines that the contractor or subcontractor had included unallowable costs in those final rates?
Doesn’t matter. The contract is closed. There is no impact. In fact, we would argue that DCAA should not even count the closed contract in its audit universe.
We should note that DCMA has closeout instructions and there are many resources on the internet to help negotiators structure a final rate negotiation that takes place in advance of receipt of final billing rates. In our experience, though, people don’t look for those resources because they have already decided that they have to wait for “final rates.”
Other common areas in which people seem to be reluctant to negotiate include establishing final costs for a firm-price-incentive or cost-reimbursement-incentive contract. Again, they want to wait for “final rates” to determine final contract costs for purposes of calculating the incentive shares—but that is absolutely contrary to the contract clause(s), which mandate final price negotiation “promptly”. (See 52.216-16(d).) Failure to follow the requirements by waiting for “final rates” could mean that the parties may be in breach of contract requirements.
And that’s just a couple of the many opportunities for negotiation. There are many more we could have discussed, including termination settlements, requests for equitable adjustment, etc. Our point remains: if you are unwilling to negotiate, you have missed significant opportunities to accelerate cash flow and reduce downstream administrative costs.
But one more thing: you may also have missed an opportunity to avoid a dispute.
Often, negotiations can resolve issues without resorting to the formal disputes process. If you can resolve issues without a formal dispute that means that you may not have to hire an attorney, thus avoiding significant fees that are likely to be unallowable.
You may have to give something up, but the upside is avoidance of a potentially protracted and costly process. In our experience it’s usually worth giving something in order to avoid litigation.
Here’s a final story:
Several years ago we were involved in an intense dispute involving huge DCAA disallowances on multiple years’ rates, Contracting Officer Final Decisions, demand for payment, notices of appeal, and actual litigation at the Armed Services Board of Contract Appeals (ASBCA). As we’ve written before, if the government’s disallowance is big enough, and the contractor disagrees, then the contractor will lawyer-up. The contractor literally cannot afford to agree. These disallowances were cumulatively worth nearly one billion dollars: the contractor could (and did) hire quite a few very expensive attorneys to pursue its appeal. There were litigation experts; there were deposition experts; there were contract cost experts. With that kind of money at stake, the contractor was willing to spend more than the GDP of many states.
Meanwhile I put together a very small team and tried to negotiate some of the issues with the DCMA contracting officer in parallel with the ASBCA litigation. Our strategy was simple: rather than focus on the dollars, we would focus on the issues. We would try to come to an agreement on issues and then apply the agreement to the years in dispute. (Note that we knew the dollars associated with each issue; but we wanted to separate the dollars from the issues because we expected the government folks wouldn’t have the same understanding of how costs flowed to contracts in our very complex indirect cost allocation model.)
(We were helped by a government realization that the DCAA audit reports underlying the COFDs were seriously flawed. We were also helped by a government realization that nobody wanted to actually try the case, because it was either (a) embarrassing, or (b) too complex.)
Our strategy was to tackle the small issues first, and we gave in on almost every one of them. When we didn’t give in, we “split the baby” and agreed to a 50/50 position on cost allowability. We gave the government negotiators a string of victories—all of them virtually worthless at the contract cost level. Then when we got to the big issues, we stood firm and reminded the other side how many concessions we had already made, and asked them to now make some concessions of their own. And they did!
Long story short: for one year we started with (if memory serves) $249 million in cost disallowances. (Yes, million with an “M”.) By the time we were done, we had agreed on $489 thousand, none of which was deemed to be expressly unallowable. When that $489,000 was run through the cost allocation model, the impact on contract costs was less than $300,000.
We considered that a very good negotiation outcome—and the agreed-upon positions were applied to the other years in dispute, with similar results. Our agreement was contingent on a global settlement agreement being executed between the parties. It was eventually executed and the ASBCA appeals were dismissed with prejudice.
Had we not been willing to negotiate, or had we been afraid of being criticized over the fact that we could not get the disallowances down to a perfect zero, then we would have missed a significant opportunity to resolve matters without spending a small fortune on outside attorneys. The government would have missed a significant opportunity to close out years and contracts and eliminate a whole slew of ULOs.
Negotiation worked, as it often does.
Why not bolster your negotiation skills?
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