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DCAA/DCMA refuse to perform Cost/Price Analysis?

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If DCAA/DCMA refuses to perform a subcontract cost/price analysis under a Prime Contract subject to TINA (certification required) what options are available to determine fair and reasonableness? The options I have heard (and my rebuttal to each) are:

1. Request the subcontract to provide 'data other than cost/pricing''; however I believe this to be insufficient because a cost/price certification is needed from the subcontractor

2. Have a mutually agreeable 3rd party perform the cost/price analysis (this can be costly); or

3. Reach out to the Contracting Officer and rely on she/he to perform the analysis

Does anyone have any experience with a similar scenario?

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Try 3. FAR 15.404-1( a )( 1 ) says the contracting officer is responsible for evaluating the reasonableness of the offered prices.

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If DCAA/DCMA refuses to perform a subcontract cost/price analysis under a Prime Contract subject to TINA (certification required) what options are available to determine fair and reasonableness? The options I have heard (and my rebuttal to each) are:

1. Request the subcontract to provide 'data other than cost/pricing''; however I believe this to be insufficient because a cost/price certification is needed from the subcontractor

2. Have a mutually agreeable 3rd party perform the cost/price analysis (this can be costly); or

3. Reach out to the Contracting Officer and rely on she/he to perform the analysis

Does anyone have any experience with a similar scenario?

Why didn't the prime contractor analyze the subcontracts? FAR 15.404-3( b ) states:

The prime contractor or subcontractor shall—

(1) Conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices;

(2) Include the results of these analyses in the price proposal; and

(3) When required by paragraph ( c ) of this subsection, submit subcontractor certified cost or pricing data to the Government as part of its own certified cost or pricing data.

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I can understand DCAA's refusal to perform CAPA if the value of the subcontract is below their recently revised audit thresholds (which are $10 million FFP/$100 million CP).

But what I don't understand is why DCMA refuses to perform CAPA.

I can't help feeling there's more to this story than is being posted.

H2H

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I have the same question as Don. Has the prime performed - and attached - its cost/price appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices, which helps the government evaluate the reasonableness of the proposal? Perhaps DCMA is waiting for this.

It isnt the auditor's responsibility to perform cost or price analysis.

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If DCAA/DCMA refuses to perform a subcontract cost/price analysis under a Prime Contract subject to TINA (certification required) what options are available to determine fair and reasonableness?

Did you ask DCAA to provide field pricing assistance (an audit) or did you ask it to perform a cost/price analysis?

Contracting officers, not DCAA, are responsible for the performance of cost/price analyses. See FAR 15.404-1(a)(1). DCAA provides field pricing assistance (support) to contracting officers who are doing such analyses. See 15.404-2(a)(2) and 42.101. DCAA audits proposals and cost estimates in support of CO analyses, but does not do the full analysis. See the DCAA Contract Audit Manual (DCAAM) 1-102 and 9.102.

As others have pointed out, analysis of subcontractor proposals is primarily the responsibility of the prime contractor and higher-tier subcontractors. They are to provide the results of their analyses to the CO. See FAR 15.404-3(B)(2) and 15.408, Table 15-2, II.A.

DCAA's audit is discussed in depth at DCAAM 9.104. When auditing a prime contractor's proposal the auditor will consider relevant parts of subcontract proposals. However, he or she will not normally conduct an audit at the subcontractor's facility. See DCAAM 9.104-1( c). See, however, DCAAM 9.104-1(d):

d. In some cases, audits of subcontracts may be performed when requested by the contracting officer prior to completion of the prime contractor’s proposal and the prime contractor’s analysis of the subcontract proposal provided all of the following three guidelines are met:

(1) The subcontract proposal has been approved by the appropriate subcontractor management.

(2) The prime contractor has submitted the subcontract proposal to the Gover nment with an assertion from the prime contractor’s management that it intends to contract with this subcontractor, and

(3) The contracting officer, prime contract auditor, or next higher-tier subcontract auditor requests an audit of the subcontractor proposal and informs the subcontract auditor that the contracting officer has determined subcontract audit support is required based on DFARS PGI 215.404-3(a)(i). The PGI provides that such assistance may be appropriate when, for example:

(a) There is a business relationship between the contractor and the subcontractor not conducive to independence and objectivity;

(
B)
The contractor is a sole source supplier and the subcontract costs represent a substantial part of the contract cost;

( c) The contractor has been denied access to the subcontractor’s records;

(d) The contracting officer determines that, because of factors such as the size of the proposed subcontract price, audit or field pricing assistance for a subcontract at any tier is critical to a fully detailed analysis of the prime contractor’s proposal;

(e) The contractor or higher-tier subcontractor has been cited for having significant estimating system deficiencies in the area of subcontract pricing, especially the failure to perform adequate cost analyses of proposed subcontract costs or to perform subcontract analyses prior to negotiation of the prime contract with the Government; or

(f) A lower-tier subcontractor has been cited as having significant estimating system deficiencies.

See also DCAAM 9.104-2 about assist audits.

So if you asked DCAA for a cost/price analysis, it may be that your request was rejected because you did not ask for the right thing. It may be that the proposal did not exceed the recommended dollar thresholds in DFARS PGI 215.404-2(a)(ii) or meet the conditions in DCAAM 9-102.3. At its website, DCAA publishes instructions on how to request an audit. See under "Publications." Did you follow those procedures?

If you did all the right things and met the specified conditions for DCAA field pricing assistance, then I cannot explain the rejection. Without more information about the procurement and the proposal, I cannot give you advice about what to do.

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That is excellent input from Vern. You were asking about some options available to determine fair and reasonableness of subcontract using cost/price analysis under a Prime Contract subject to TINA (certification required)?

I dont know what type of contracting or contract action you are dealing with. I can explain some of my real life experience with negotiating construction contracting for new sole source contracts or modifications, where DCAA audits of primes and/or subs were involved. I don't know DCMA's policies and procedures, though. They might be quite different and the following may not be directly applicable to your situation. Your action might not even require negotiation.

The audit can be more effective if a prime has performed some type of realistic cost analysis - which would hopefully include a technical analysis of the sub's approach to the required effort. The DCAA audit is often much more effective if the government contracting agency performs and provides a technical analysis (see 15.404-1 (e )) with the audit request. The Technical analysis may utilize the results of the prime contractor analyses, if provided. The technical analysis may question the technical approach, question the need for or reasonableness of various aspects of the proposal, estimated manhours or equipment, materials, etc. The technical analysis may also steer the auditor toward certain aspects of the proposal that need some price verification or investigation of price basis. Inasmuch as DCAA has limited resources, the more help we can provide may maximize their effectiveness. The neat thing I liked was that the DCAA often incorporated our analysis into the audit, which were reflected in the unsupported or questioned costs identifed in the audit.

OKAY - once we get the results of the audit, the government estimate, the technical analysis and any other analysis - THEN we would perform or finalize our cost and price analysis of the proposal in developing the government's pre-negotiation objective, taking into account the proposal, analyses, audit, etc.

There is a lot of gobblygook in FAR Supart 15.4. It never has been clear. When it was rewritten in 1997, it was intended to reduce the burden on industry somewhat and to streamline some requirements. It still isnt clear.

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I guess I didnt really answer your question about getting the price/cost analysis done. Are you with the contracting agency or with the customer? The contracting agency should have the resources to evaluate proposals. Did they mention anything about the prime having to perform the analyses mentioned above.

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I agree with Joel. Most contracting activities with which I am familiar have cost/price analysts whose job it is to perform these analyses.

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Most contracting activities with which I am familiar...

Really? Interesting piece of info, but I'm not sure how useful it is. How many contracting activities are you familiar with and how familiar with them are you? DOD alone has 86 contracting activites. NASA has 11 permanent ones and has more program ones. How many of all those activities are you familiar with? How many of them have cost/price analysts? How many does each of them have?

I doubt that I'm as familiar with as many contracting activities as you, but the very, very few that I am familiar enough with to know about their cost/price analysts have many more COs than cost/price analysts and the cost/price analysts can attend to only the most important acquisitions.

But I'm not sure how relevant or useful this is to gjhall23.

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Vern you brought up a good point that I should have clarified. This was a field pricing assist request that was turned down. The other details I should mention are that the proposal in question was for roughly $800k and was T&M. So this does not cross the thresholds you referenced.

But my questions remains - when the proposal crosses the TINA threshold but not the DFARS PGI 215.404-2(a)(ii) thresholds and the subcontractor will not provide cost or pricing data to anyone but the government for competitive reasons what alternatives do I have if the government refuses to perform the audit? Go back and compete the effort?

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The alternative is to perform cost analysis without a government audit. That is possible, you know. If the subcontractor has been audited before you might be able to get some information about rates from DCAA over the phone. Ask the sub if it has been audited before, when, and by what DCAA office. If the sub has not been audited before, then ask it for detailed information about how it calculated its indirect cost rates and do your analysis based on that information. That's all that I can think of to suggest. $800,000 is not a lot. An audit is not absolutely essential. Ask your boss for help if you don't know how to do the cost analysis. If no help is available, then, well, you are on your own. Figure something out.

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Vern - you mention that an audit is not absolutely essential. I've never heard that. Can you elaborate? I agree that $800k is not alot but per our approved CPSR procedures we are required to perform a cost analysis. I like what you mention regarding asking the sub how they calculate their indirects or requesting verbal info from DCAA; however, since I do not have the cost/price information the sub has provided would it be prudent for me to accept the cost/price certification?

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Cost analysis and audit are not the same things. Do you understand? Cost analysis is reverse cost estimating -- taking a proposed cost estimate and (a) breaking it down into its component materials, labor, and capital, (B) considering the propriety of using each of those elements in terms of chosen type and grade, estimated quantity, and estimated unit price or cost, and ( c) deciding whether the proposed elements are what they ought to be "assuming reasonable economy and efficiency." See FAR 15.404-1( c)(1). The analyst makes adjustments to each of the proposed elements based on facts and judgments and re-assembles them into a new cost estimate that will be the basis for a negotiating position. Clearly, cost analysis takes know-how.

The DCAAM explains audit at 1-104.2 a. as follows:

The purpose of contract auditing is to assist in achieving prudent contracting by providing those responsible for Government procurement with financial information and advice relating to contractual matters and the effectiveness, efficiency, and economy of contractors' operations. Contract audit activities include providing professional advice on accounting and financial matters to assist in the negotiation, award, administration, repricing and settlement of contracts. Audit interest encompasses the totality of the con- tractor's operations. Audits are performed to assure the existence of adequate controls which will prevent or avoid wasteful, careless, and inefficient practices by contractors. These audits include the evaluation of a contractor's policies, procedures, controls and actual performance, identifying and evaluating all activities which contribute to, or have an impact on, proposed or incurred costs of Government contracts.

Emphasis on assist added. Thus, audit is helpful input to cost analysis, but it is not cost analysis nor is it essential to cost analysis. Without an audit the cost analyst cannot independently verify all information, but he or she can still disassemble the proposed cost estimate and make adjustments based on facts, assertions of fact, and judgments. Your approved CSPR system calls for a cost analysis, and so you must do one, albeit without an audit. But DCAA and DCMA owe you nothing.

As for reliance on the sub's certification, the certification merely asserts that the cost or pricing data that the sub has submitted -- i.e., verifiable facts, see the definitions in FAR 2.101 of certified cost or pricing data and of cost or pricing data -- were accurate, complete, and current as of a specified date. The sub certifies the accuracy, completeness, and currency of the data, not of proposed prices or costs or of the underlying cost estimates. Can you rely on the data? You have no choice if you cannot get an audit. Presumably, the subcontract will include a clause that protects your firm if any of the sub's data turn out to be defective -- i.e., inaccurate, incomplete, or out of date and you or the government were misled into agreeing to a higher price than you otherwise would have.

I want to be frank -- this is all pretty basic and it sounds to me as if you are fairly new to this field. No insult intended. If that is the case, then Wifcon Forum is not the place to come for an education. We can only do so much for you in this format and we are all busy with other work and cannot devote a lot of time to bringing you up to speed. You have to do some reading and thinking. I recommend that you start with the DOD Contract Pricing Reference Guides, available at http://www.acq.osd.m...nce_guides.html, and go on from there.

Good luck to you.

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Thank you Vern. My wife would agree with you that I am an idiot so thank for the daily dose of humility. I must say I did read your previous post incorrectly when you made mention of 'audit'. I was multitasking and read it as 'analysis'. My mistake. The real issue I am having is the subcontractor will not provide me with any cost or pricing data (or even how it calculated its indirect cost rates) which makes the task of performing a cost analysis extremely difficult. An audit is not essential- that is true, yet without one and the lack of DCAA/DCMA verbally providing me anything I was just asking if others had been in similar circumstances and how they approached it.

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I don't think you're an idiot, but your wife knows you better.

I'm sure others have been in your situation. I assume that you have considered and rejected the idea of finding a more cooperative sub. If I knew more of the particulars (what you are buying, contract type, etc.) I might be able to provide better guidance, but I don't consult anymore, so that's out. Maybe one of the others here can be of more help. Good luck.

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gjhall23,

We are having similar challenges. I think DCAA and DCMA are working through their respective rolls. Sometimes getting the PCO -who has cognizance over the prime the sub is being place under - involved helps. They tend have an interest in closure.

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It seems the fundamental issue is that the subK will NOT provide certified cost and pricing data to permit gjhall23 to conduct the required cost analysis to conclude that the offered price is fair and reasonable, as (properly) required by his/her internal purchasing procedures.

If I have that right, then I do not think gjhall23 can, or should, award a subcontract to that supplier. Being unable to support the reasonableness of a subcontractors' price, when challenged by DCAA and the CO, just cost KBR ~ $30 million at the Court of Federal Claims.

http://www.uscfc.usc...LLOGG050212.pdf

It is a fairly long decision--more than 90 pages--but it has a lot to say about the duty to support price reasonableness and a prime contractor's responsibility to document negotiations with its subKs.

Hope this helps.

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The prime contract probably contains the clause at FAR 52.215-12 or 52.215-13, in which case it is contractually bound to get certified cost or pricing data from a sub under specified circumstances. In that case, failure to do so would be breach of contract.

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I don't think the question is wheather the the prime contractor has the requirment to obtain certified cost or pricing data. I think question is if the subcontractor will only provide that data to the Government - as is the policy of many large contractors now days - and the prime contractor is not able to obtain timely support from DCAA or DCMA to review the data and provide a summary report to the prime contractor - which prime contractors have historically relied on - what are the options of the prime contractor

It is a real time issure for a prime contractors.

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garth,

Yeah, you might want to read that KBR CoFC decision. They were boots on the ground in Iraq and had thousands of soldiers to feed. The company tried to argue that those wartime circumstances should lead to a relaxation of the requirement to determine price reasonableness. Judge Miller wasn't buying it. She wrote--

Plaintiff [KBR] consistently advocates that it acted in a ‘prudent manner’ in negotiating prices with [subcontractor] and that, when the realities of the situation KBR faced at Anaconda are taken into consideration—the various environmental factors such as the threat to supply lines and personnel, along with the need to fulfill the demands of the Government in performing under LOGCAP III—the court should find that the outcome with [subcontractor], although perhaps not ideal from a ‘conference room’ perspective, was reasonable. … (‘Viewed in the totality of the circumstances, KBR’s actions may not have been perfect but were prudent, and are not properly subject to Government second guessing . . . .”) … (“The standards the Court must apply do not, as suggested by the Government, relate to ‘conference-room’ contracting . . . but rather are those from the crucible of a war . . . .”). The court concurs with plaintiff’s point, with the following caveat: while plaintiff’s decisions must be viewed in the context in which they were made, and thus must take into account the realities that KBR personnel and its subcontractor were facing at the time, this willingness to expand ‘reasonable’ beyond the ‘conference room’ is confined to circumstances when KBR was dealing with realities over which it had no control….

… KBR cannot now point to a deficit in bargaining power and contend that its weakened state entitles it to greater latitude when the court makes a reasonableness determination on the product of those negotiations. A contractor may not itself manufacture—or in this case exacerbate—a situation that leads to higher costs for the Government and then attempt to pass the ultimate financial responsibility for that situation on to the Government. Because it was KBR, and not the Government, that contributed to its weakened negotiation position, it is KBR, and not the Government, that bears the financial risk of whatever fiscal concessions [subcontractor] was able to wrangle out of KBR due to [subcontractor's] greater bargaining power on this issue. The Government agreed to compensate KBR for costs reasonably incurred under LOGCAP III; it did not agree to be an insurer of any business decision that KBR attempted to implement and will not be held to such a standard.

[Emphasis added.]

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I work for a prime contractor and perform audits of their subcontractors when requested. Procurement used to obtain audit services from DCAA but we were told DCAA would not support them anymore. Since then, they have contracted with my firm for the services.

(Bob, I hope this is within the guidelines for posting)

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Good to know some sources fior audit services. During the period of the original post, I really needed audit services for a $43 million REA, including a multi-million dollar delay for a major subcontractor on a USACE Civil Works project. DCAA wasn't available or interested at the time plus would have charged for the audit since it wasn't a Military funded (Title 10) contract. DCAA did provide info from older audits concern both the prime and subcontractor. Their workload is too heavy and DCAA is under-resourced.

In addition to Old Dog, there is an auditor, who currently advertises on the WIFCON Homepage. He used to be Chief Auditor at my USACE District Office before USACE eliminated this function, Corps-wide. He was a good, conscientious auditor. He should have much more experience since the 1990's.

This is not an official endorsement of anyone - always check recent references.

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Hi Joel,

"DCAA did provide info from older audits concern both the prime and subcontractor. Their workload is too heavy and DCAA is under-resourced."

Not really. You may want to review a very recent DOD Inspector General audit report on DCAA audit quality that points out "We identified 1 or more significant inadequacies on 13 of the 16 selected DCAA audits. We found deficiencies with generally accepted government auditing standards in the areas of audit planning, evidence, working paper documentation, and supervision. In addition, our review disclosed instances of auditors not obtaining adequate cost or pricing data."

Make of that what you will. To me, it does not speak to a too-heavy workload or to a lack of resources.

H2H

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H2H, I'm not going to say too much more here about DCAA other than that they needed lots of technical analysis input and other details from the requesting office in order to provide meaningful audits for construction contract matters. If they didn't get meaningful technical input - especially for construction contract specific matters - then there might as well not been an audit. Our folks generally misunderstand what an auditor does and expect them to know all without having any input from the cost analysts and tech experts. Our in-house contract auditors as well as our resident DCAA auditors were much more effective in my experience because we had daily face to face contact and could work together to dig into details. When the auditor adopted our tech analysis into their questioned and unsupported costs, it put more teeth into our negotiating position.

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