Hi all,
New to the forum! I'm a government contracts specialist who consults for a variety of primes and subcontractors. Some of my clients are small businesses who have not yet primed a government contract, but implement a variety of government subcontracts. They have undergone external audits of their indirects and thus been issued CPFF subKs. Their subKs include FAR 52.215-2, so they could be subject to audits of both direct and indirect costs if the prime is audited. My question has two parts, the first general, the second more specific:
1. Since they have no NICRA and are not subject to CAS, what is the risk of their *indirects* being questioned under an audit per 52.215-2 (if the auditor determines the subcontract must also be audited). And if they are audited, would the auditor simply look for unallowable costs or would they also look at the way the indirect pools and bases were established? This leads to my next, more specific question...
2. One of these clients has 2 years of audited financials and had their indirects prepared by an outside firm using the ICE model. A colleague I work with who has extensive audit experience, reviewed their rates and claims that their rates are not compliant with ICE (OH is billed on direct consultant labor and B&P dollars are not broken out but are instead incorporated in OH labor, not the G&A pool) and they are therefore at risk if they are audited under 52.215-2. Is this a true risk, given that they are only a sub? Would an auditor realistically dig into how line items are allocated among indirect pools and, if necessary, require them to redo their rates and credit the subcontract any difference?