Contractor Business System Review for CAS exempt contracts

[WinterMute]

I have several contracts that currently have DFARs 252.242.7005 Contractor Business Systems but are CAS exempt. Until recently, it was my understanding that since the contracts are CAS exempt, the CBS requirements are not applicable since 252.242.7005 states, "This clause only applies to covered contracts that are subject to the Cost Accounting Standards under 41.U.S.C. chapter 15, as implemented in regulations found at 48 CFR 9903.201-1." My leads have now instructed me to request from the contractor a disclosure statement for their purchasing and estimating system regardless of their CAS exemption. Regardless of CAS, the ACO would have to make a determination for approval vs disapproval which would then be input into CBAR.

My question is whether this is the correct interpretation of the CAS and CBS clauses since it seems very backwards to me. I have always thought that CAS drives CBS which leads to a system review rather than doing a systems review then determining CAS. The contractor is also hung up on the issue since they know they are CAS exempt.

[Guest Vern Edwards]

The CBS requirements are contractual. They apply only when the clause at DFARS 252.242-7005 is in the contract and in accordance with the terms of the clause. The clause is only to be included in covered contracts, as defined in DFARS 242.7000, and when the contract includes any one of six specified clauses. See DFARS 242.7001. If the clause is in the contract it only applies to covered contracts. See DFARS 252.242-7005(a). Since you say CAS do not apply, then it follows that CBS and the clause do not apply.

Is it possible that your leads are demanding that information not on the basis of CBS, but on the basis of other authority, such as DFARS 252.215-7002?

[Retreadfed]

Wintermute, what do you mean by "a disclosure statement for their purchasing and estimating system"? None of the business systems clauses require a disclosure statement.

[here_2_help]

Retreadfed,

Wintermute means a system description. An estimating system description and a purchasing system description.

The question is whether a contractor may be required to comply with business system adequacy criteria, even though the government does not have the ability to effect payment withholds for systems found to be inadequate. The answer to that question is yes.

The clauses relating to the individual systems existed well before the creation of the 242.7005 administration clause. As Vern speculated, the requirement to have adequate business systems is not the 242.7005 clause, but the individual business system clause(s) in the contract.

Hope this helps.

[Retreadfed]

H2H, you may be correct as to what is meant by a disclosure statement. However, I would want to know the context in which this request is being made. Is it being made by a PCO? If so, for what purpose since it is the ACO that administers the business systems clauses. Further, in regard to the purchasing system, is Wintermute employed by the cognizant Federal agency for conducting a CPSR in accordance with FAR Part 44?

[here_2_help]

Retreadfed,

Those are interesting questions, indeed.

H2H

[sme1102]

The DFRAS Business System clause 252.242-7005 only is incorporated in contracts when the same contract is covered by the Cost Accounting Standards. This does not mean there are not other terms and conditions which require an adequate business system. For example, the Progress Payment clause 52.232-16 requires the contractor to maintain an accounting system and controls for administration of the clause. That could be in contracts awarded to small business which are exempt from CAS. Thus CAS does not drive CBS and CBS does not drive CAS.

Notwithstanding that the Business System Clause is not in the contract, the contracting officer could always reduce the financing amount based on supportable rationale and documentation. The CO would have to demonstrate the amount the Government was impacted because of a system deficiency. The CO cannot arbitrarily reduce the amount. The CO is also required to notify the contractor of the intended action and allow for discussion before reducing the payment. . The Business System clause provides way to reduce the financing payment because the contractor already agreed to the procedure when it signed the contract.

[here_2_help]

sme1102,

I think you are conflating the notion of an adequate BUSINESS SYSTEM with the notion of adequate systems to administer contract financing payments.

There are six Business Systems identified in DFARS. Each has its own contract clause that defines adequacy criteria. A contractor must have an "adequate" business system, as defined by the appropriate contract clause. If the clause is in the contract but the contractor does not comply with clause requirements, it could be found to be in breach of the contract.

There is one Business Systems administration clause. It is put in contracts as directed by DFARS 242.7001. As you stated, it is only to be put into "covered" contracts, which is defined at 242.7000(a) as a CAS-covered contract. Indeed, the first sentence of the clause states that it only applies to CAS-covered contracts.

When a contract has BOTH the 252.242-7005 clause AND one or more of the individual Business Systems adequacy clauses, then there is a specified (and mandatory) process and remedy for an inadequate business system.

Separately, other clauses (e.g., the Progress Payment clause) require a rather non-specific and ambiguous set of processes and controls so as to assure compliance with the clause requirements. But what is being required is emphatically NOT a DFARS Business System, since none of the six DFARS Business System clauses are being referenced.

Apologies for any pedantry. Hope this helps