here_2_help

In a related note, another relevant circumstance to my one data point was that the contractor workforce was far from corporate offices. The "controls" the company had put into place had little effect that far away. Because the workforce was far from home and in close proximity to local "friends" in the government, they tended to see the government personnel as their true bosses. "FAR Fetched" go kick the tires at this location. It may be just a few employees but that's enough to create a whopping big liability for your company if they are doing things they shouldn't be doing. If necessary, go hire an outside firm (legal or accounting) and have them spend a week at the site, reviewing actual practices for compliance with company policies. It's cheap insurance. Trust me on this. H2H

I think Vern and kitty answered the mail. But I wanted to add one more thought to the mix. The last time I encountered a contractor who (a) acquired an incumbent workforce, ( where the employees were "close" to government personnel, and © where the government advocated on behalf of employees (effectively acting as manager of contractor personnel) ... several people (both government and contractor) ended-up spending a LOT of time being interviewed by DOJ and CID. At one point we had a team of 11 assigned full-time to figuring out how deep the hole was--and it was very deep indeed. One government official ended-up in jail. The contractor ended-up paying mega-level legal costs and making a mega-settlement with DOJ. I'm serious and "FAR Fetched" needs to be on the look-out for illegal collusion between the governmental "advocates" and contractor employees. I would check employee records thoroughly and look for connections between the employees and the government personnel -- i.e., is somebody related (perhaps by marriage)? Do they live next to one another? I would also check expense reports and see if there were any tell-tale patterns. If I found some anomalies I would image hard drives and review email and IM records. In short, while I only have one data point (which is never a good basis for drawing conclusions), that one data point is enough that I would advise "FAR Fetched" to treat this situation as a symptom of something that is potentially a huge, huge, problem. I hope I'm wrong, but this situation, as described, is ringing my warning bell. Hope this helps.

Hi Beverly, Long ago I was involved with an ID/IQ Task Order contract with two Team SubKs. We had more than 300 task orders--scores of which were active at the same time--and it was a nightmare to manage funding and costs by task order and by performing entity. So I definitely feel your pain! But when I read, "We would manage by total hours for the workforce on the subcontract and not by task order," I wonder how you are going to comply with Limitation of Costs/Limitation of Funds requirements with respect to each task order. I wonder how you are going to accumulate labor hours and costs for invoicing each task order. I wonder how you are going to report progress or (heaven forbid!) Earned Value analysis of each task order. I wonder how you will calculate Estimates-at-Completion (EACs) for each task order. I wonder how you are going to prepare your incurred cost submission/final indirect cost rate proposal at year-end, when DCAA will want to see actual costs, by cost element (including subcontractor costs), for each task order. Now maybe you only have FFP task orders and most of what I said is Not Applicable. Or maybe you have better systems than we had, long ago. But just in case your situation was similar to mine, I thought I would raise my concerns for your consideration. Hope this helps.

Retreadfed, I agree that that 52.212-4 (Alt 1) should be the correct payment clause in the contract; however, I was hoping to learn what the actual payment clause was. Further, I also agree with you that if the correct payment clause was incorporated, then the DCAA issues are very likely to be moot. I would like to be able to answer the original questions as follows. 1. Is the contractor eligible for T&M type task orders if DCAA says the accounting system is inadequate? My answer would be yes if the 52.212-4 (Alt 1) clause was in effect and the CO found the contractor's timekeeping and billing systems to be adequate, based on the DCAA report. 2. Does a contractor need to have DCAA determine that its accounting system is adequate if the Government will award T&M type task orders under a "commercial" (i.e., Part 12) ID/IQ award? My answer would be no since doing so violates the spirit, if not the express intent, of FASA--which is to award to "commercial" companies that would not otherwise be available to the government since they will not be able to comply with all requirements. Moreover, FAR 12.102© states that Part 12 policies take precedence over the policies of other Parts of the FAR (e.g., Part 16). So I would argue that if the CO is awarding under Part 12, s/he can find that there is no need for the contractor to have an accounting system that DCAA has determined to be adequate for "other than FFP" type work. But the sticky issue is the solicitation. If it made DCAA's accounting system adequacy determination an element of responsibility, and that requirement was applied to all offerors, then how do you get around it without being accused of treating one offeror unequally. I don't think you can. We have seen several recent bid protest cases along these lines (Vern posted one as I recall). If the CO requires DCAA to audit an offeror's accounting system and conclude that it is adequate under the criteria that DCAA uses, then a DCAA audit report that states the offeror did not meet those criteria is fatal. As far as I can tell, there is little (if any) leeway for a solicitation that misapplies that requirement, or DCAA criteria that are not applicable to the contract type that is being awarded. The lesson here, I would think, is that CO's had better be careful in what they require from offerors--make sure that they are asking for what only what they need to ask for. Second, when dealing with DCAA, the CO should attempt to focus DCAA on applicable requirements and try to get inapplicable criteria dropped from the audit scope. (I think this latter effort would fall under "agreed-upon procedures" in the DCAA rulebook.) Hope this helps.

CMSHR, You said that the IDIQ was "commercial". What payment clause do you expect will control the contractor's invoicing? If you are contemplating 52.232-7, I think you and the contractor are SOL. H2H

"A contractor needs to have an accounting system that is adequate for the contract type being considered before the contractor can be determined responsible. This means you have to look at what type of accounting data is required for the contract type being considered." Yes, this is true. But the sad fact is that DCAA does not have a separate audit program for each contract type. In other words, DCAA has a one-size-fits-all-contract-types audit program that assumes all contract types (other than FFP) require the same level of adequacy. E.g., contractors that do not have any contracts that require progress payments are required to have accounting systems that can support cost-based progress payment requests, contractors that don't have any contractors that require accounting at CLIN levels are required to have accounting systems that can account for costs at the CLIN level, contractors that don't have any cost-reimbursement contracts are required to have accounting systems that meet all requirements of cost-reimbursement contracting, etc. DCAA is in the process of revising its accounting system audit approach to address the needs of the new DFARS business system clauses. I've seen a briefing on the new approach. So far as I can tell, DCAA has no intention of having an accounting system adequacy audit program that can be tailored to focus only on requirements specific to the contract type(s) that the contractor has, or is bidding on. I think it would be a great service to all DCAA customers if they would create just that type of flexible audit program. But as far as I can tell, there is no intention of doing so. Hope this helps.

I should have added that you likely have options if you want to question/disallow the costs in question. My first thought was, "are the costs reasonable?" Hope this helps

Vern, The memory is a bit hazy after all these years, but as I recall it was more the latter--the "we ought to have the right." We had a single purchasing system. In fact we had a single "Contracts" department that handled everything, including prime contract management, pre- and post-award management of subcontracts (as WE defined them in our command media), procurement of supplies and cosumables, and procurement of goods and services to be charged to indirect cost objectives such as overhead and G&A departments. We did it all under the same set of policies (though of course with different policies for different efforts). Since everything was acquired under our "purchasing system" the reviewers felt no hesitations about looking at everything so acquired. But as I recall they did not base their assertion on any contract clause or FAR direction. It was more of "since we are paying for some of it AND you have a single company-wide purchasing system that we are reviewing ...." Looking forward to your blog article. And if I can beg a copy of your N&C article, that would be the cherry on my Sunday Sundae. H2H

Hi Boof, I'm not a Government employee so maybe I'm missing something. But from my point of view it's hard for me to see an answerable question. I'm going to quote you and then provide (gratuitous) comments on your post. "work was completed 18 months ago but invoicing goes on" -- Is the contractor billing you for costs incurred after the contract's Period of Performance? "100% of G&A gets invoiced to this contract." -- Yeah, that's possible, but not likely. Was this the way the proposal was initially bid? "the contractor did such a horrible job keeping thier records that they have millions in uninvoiced incurred costs" -- I don't shock easily, but you've shocked me. The contractor cannot invoice because of missing records? So you are saying the records are so bad that the contractor cannot even figure out how much costs to record on its books and records? And that's the contractor to whom a CPFF contract was awarded? "They have been charging us these personnel for 18 months and they say they need many more months to complete the billing" -- Are you sure the costs are for invoicing, or are they (perhaps) for supporting a government audit? Lastly, I believe "best efforts" refers to compliance with Limitation of Cost/Funds clauses, not to the qualitative evaluation of management's efforts. (That's what a CPARS eval is for, right?) Looking forward to seeing your reply.

Vern, First, thanks for the heads-up that you already are working on the topic. Much appreciated. Second, and as I alluded to in my previous post, my CPSR experience (which is now sadly about a decade in the past) is that YES, indirect purchases are subject to review (though the flow-down requirements are not the same). The government reviewers take (took?) the position that, since the government was allocated indirect costs, it had the right to assure itself that prices paid were fair & reasonable, and that the acquisitions complied with applicable statutory requirements. The silver lining in that cloud was that the SBA reviewers allowed us to take credit for SB and SDB awards made on indirect purchases in our SF 295 submissions. In fact, the reviewers pretty much insisted we do so. So that was nice.

For some time I have been tempted to write an article entitled, "What is a Subcontract?" for Contract Magazine. The article would essentially survey the myriad number of definitions and usages of that partcular word in the FAR. I think it's painfully obvious that the word means different things in different contexts and that there is no one-size-fits-all definition. But the original question concerned the definition of the word within 44.101. Vern's reply of 4:07 AM was pretty accurate, from my experience within the prime contractor community. The thing is, why does Seeker need to understand that particular usage/definition? If the reason is that Seeker is about to experience a CPSR and needs to know if the review team is going to look at indirect purchases, then I think the answer is "probably"--especially if the company has one single purchasing system that acquires both direct and indirect goods/services. I'm struggling to think of any other reason that the definition would matter so much ... but perhaps I'm about to be enlightened in that regard.

This whole CAS Administration thingee is a difficult area, with little in the way of regulatory guidance. So I'm going largely on experience and gut feel here, which Vern would tell you is a terrible way to go and should not be trusted. That caveat aside .... You have a CAS covered subcontract award at the time you award a priced contract action. To me, a Letter Subcontract (or UCA if you prefer) is still a contract. In my experience, the definitization is via modification to the contract. If so, then the modification does not change the CAS "flavor" of the contract; it stays with the same CAS coverage it had at the time of award. (That's a fairly settled position.) So I'm tending to think you need to report the Letter Subcontract award, especially since, at "a couple million dollars," it exceeds the CAS threshold of $700,000. The CAS Admin clause (52.230-6) is a mandatory flow-down clause ("required when applicable"). In addition, the body of the clause, at (l), provides explicit directions. So I think the reporting requirement flows down with the clause into the suply chain until it reaches a subcontract this is exempt from CAS, at which point it becomes "not applicable". Hope this helps.

I just finished the third book in "The Breach" trilogy by Patrick Lee. A great mix of thriller and science fiction. Fast-moving, tense, interesting. If you are a fan of (old) Tom Clancy or Lee Child's "Reacher" stories and like a dash of futuristic ideas, then I recommend these to you.

Did you review 31.205-19, especially the part that reads: Actual losses are unallowable unless expressly provided for in the contract, except— (i) Losses incurred under the nominal deductible provisions of purchased insurance, in keeping with sound business practice, are allowable; and (ii) Minor losses, such as spoilage, breakage, and disappearance of small hand tools that occur in the ordinary course of business and that are not covered by insurance, are allowable. As I read the Cost Principle, costs of insuring against property loss, damage, or destruction would normally be allowable (if required by subcontract terms and conditions) but the actual costs associated with a specific instance of LDD would not be allowable. (I note the subcontractor might opt to self-insure rather than purchase insurance, but even so the actual costs associated with an individual event would still be unallowable.) Does this help you out?

SSKO, Did you see the CAE bid protest decision, linked-to on WIFCON's home page today? I thought it did a nice job of explaining how SAIC's accounting system could be determined to be adequate pending official DCAA audit. Certainly, the specific circumstances matter. I.e., SAIC had an adequate system and then changed it, and the new system required some corrective actions that DCAA had not yet reviewed. But I would think that this phrase ought to help -- "The determination regarding the adequacy of an offeror's cost accounting system is a matter of an offeror's responsibility. ... The determination of a prospective contractor's responsibility rests within the broad discretion of the contracting officer, who, in making that decision, must necessarily rely on his or her business judgment." Best wishes to you, H2H

No, Vern. You are right. Anytime you quote Manos, you are going to be right.

Yes, I agree it's not much of a risk to the government. It's a risk to the contractor and to the external firm performing the work. Your point(s) are taken. But to your assertion that "the burden is on the contractor to prove the allowability of its costs," I beg to differ. The burden is on the contractor to prove the reasonableness of its costs when challenged. And that is because the FAR was revised to address some court cases that held the opposite. But the burden is still on the government to prove costs are unallowable. It's the government's burden, not the contractor's. As many cases have held. See, for a recent example, ASBCA No. 56353, dated Oct. 5, 2011 (SRI international). H2H

In reviewing this thread, I don't see any discussion about what happens if an independent reviewer (whether or not a CPA) concludes the contrator's accounting system is adequate for cost-reimbursement contracting, but that a subsequent DCAA post-award review concludes it is not adequate. Or if an IG or LEO investigation concludes it is inadequate. Let me tell you, accounting firms are concerned about liability exposure. Very concerned. I can almost guarantee that the contract they sign will contain as many weasel words as their high-priced attorneys can come up with, all designed to "protect the firm". Thus, the value of the independent review will be diminished because the reviewer won't accept accountability for the quality of the review. And let's talk about cost. If the accounting firm does sign a contract that creates some sort of accountability for the quality fo the review, the firm is going to price that risk into the work. Moreover, while DCAA may charge $114/hour for its work, a decent CPA firm is going to have a tiered pricing structure that runs up to $500 - $600/hour for a partner's time. Sure, the firm will have people at $125/hour or thereabouts, but those will be the most junior (non-CPA) folks who are right out of school. (With obvious implications for the resulting audit quality.) It sounds nice to have a non-DCAA "magic bullet" to solve the issues created by the confluence of FAR 16.301-3 and DCAA's productivity problems. I caution those advocating such a solution to think carefully about the implications.

I have to agree with Vern. I was going to post something similar to his last paragraph, but he beat me to the punch. I work with DCMA very, very often. And it's the leadership that's the issue. I'm not talking about Charlie Williams, Jr. either. I'm talking about the layers of management between the average CO and Charlie. Fix that and you fix a lot of "cultural" issues.

I'm not a GSA Schedule expert, not by a long shot. But I followed the helpful link that jlbdca posted, and I read about prime/subK relationships vs. CTAs. Did I read and interpret correctly that, when there is a prime/subK relationship, the prime is responsible for compliance with the Price Reductions Clause--even if the discount is offered by the subK and not the Prime? I guess that would make sense on one level, because the subK is billing at the Prime's GSA Schedule rates ... but from a practical, compliance standpoint, I would be very uncomfortable with that risk. If I were the Prime, I would be losing sleep because I would be terrified that my subK was going to offer a discount to one of my comparison companies and I wouldn't know about it. Again, not an expert. Am I off-base with this concern? Happy to be set straight. H2H

Speaking strictly as a taxpayer, I think this practice is entirely unethical and I do not want government agencies participating in it. It taints the procurement process. Moreover, it strikes me as being contrary to President Obama's promises of government transparency. The Federal government should procure goods and services at a fair and resonable price, while permitting contractors to make a reasonable profit. Using phantom bids to drive down prices below what the market offers through legitimate competition is wrong, wrong, wrong.

The solicitation provision you cite needs to be read in conjunction with the 52.215-23 contract clause. As I see it, it's an all-or-nothing proposition. If the contractor DOES add value, then the provision and clause are not applicable and profit/fee negotiations commence as they normally would. If, however, the contractor is found not to add value, then all indirect costs (except for subK management costs) and associated profit/fee become unallowable. Look at the definition of "excessive pass-through charge" found in the -23 clause. ?Excessive pass-through charge?, with respect to a Contractor or subcontractor that adds no or negligible value to a contract or subcontract, means a charge to the Government by the Contractor or subcontractor that is for indirect costs or profit/fee on work performed by a subcontractor (other than charges for the costs of managing subcontracts and any applicable indirect costs and associated profit/fee based on such costs). ... The Government will not pay excessive pass-through charges. ... (1) For other than fixed-price contracts, the excessive pass-through charges are unallowable in accordance with the provisions in FAR subpart 31.2; and (2) For applicable DoD fixed-price contracts, as identified in 15.408(n)(2)(i)(, the Government shall be entitled to a price reduction for the amount of excessive pass-through charges included in the contract price. Hope this helps.

Boof, I think whomever suggested the alternative to you is ... um, well, let's just say not right in the head. The contract pays an insurance premium and it's recorded on the books as an expense in accordance with GAAP, past accounting practices, and perhaps in accordance with a Disclosure Statement (Part VII). When the contractor records the expense, you pay it if it's allowable and reasonable in amount. It really is that simple. All the folderol about receipt of labor is nonsense. Hope this helps.

John, I suggest you retain a good government contracts attorney, and ask him/her what your options are. H2H

Meaning no disrespect to you, KMY, but this is a great example of the problems with the current acquisition approach used by many agencies. Here we see a FP-type contract with a miniscule CR line item. The government's risk of mischarging is effectively zero, because there's a NTE on the CR line item. Yet, you would have the contractor invest in policies, procedures and practices to the same extent as it would for a multi-million dollar cost-type contract. You would ask DCAA to review the contractor's accounting system to the same level of adequacy as it would apply to a major defense contractor. And (potentially) the contractor would not receive a contract if its accounting system didn't jump through all DCAA hurdles. All for a minor CR line item with an NTE ceiling that (potentially) could have been priced on an FP basis if the parties tried a bit harder to do so. Taxpayers wonder why government contracts cost so much in comparison to similar commercial items/services. Agencies wonder why contractor overhead keeps going up. Well, here's one good reason why that would be the case.... Again, my rant isn't directed at you, KMY, but at the system that creates this type of situation. H2H