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What is a "Transaction"?


Fara Fasat

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The Part 15 audit clause (52.215-2) has extensive audit rights if the contract is cost-reimbursement, or if certified cost or pricing data was submitted. It also has at (d): "The Comptroller General of the United States, or an authorized representative of the Comptroller General, shall have access to and right to examine any of the Contractor’s directly pertinent records involving transactions related to this contract."
The Part 12 audit clause (52.212-5(d)) only has the language concerning Comptroller  General access to records involving transactions. 

Does anyone have experience with an audit under Part 12, and specifically what a "transaction" is? There is no separate definition of a transaction in the FAR, although the word is used extensively. 

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I'm not seeing a big difference. 

52.215-2 states: "(1) The Comptroller General of the United States, or an authorized representative, shall have access to and the right to examine any of the Contractor’s directly pertinent records involving transactions related to this contract or a subcontract hereunder and to interview any current employee regarding such transactions. (2) This paragraph may not be construed to require the Contractor or subcontractor to create or maintain any record that the Contractor or subcontractor does not maintain in the ordinary course of business or pursuant to a provision of law."

52.212-5(d) states:  "(1) The Comptroller General of the United States, or an authorized representative of the Comptroller General, shall have access to and right to examine any of the Contractor’s directly pertinent records involving transactions related to this contract. … (3) As used in this clause, records include books, documents, accounting procedures and practices, and other data, regardless of type and regardless of form. This does not require the Contractor to create or maintain any record that the Contractor does not maintain in the ordinary course of business or pursuant to a provision of law."

FAR 4.7 states that the term "records" encompasses "books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form of computer data, or in any other form, and other supporting evidence to satisfy contract negotiation, administration, and audit requirements of the contracting agencies and the Comptroller General...." FAR 4.7 identifies the following categories of records: (1) Financial and cost accounting records, (2) Pay administration records, and (3) Acquisition and supply records. Even though FAR 4.7 does not reference 52.212-5(d), the language within 52.212-5(d) references 4.7.

One clause expressly grants interview access to current employees; the other does not. One clause contemplates a flow-down to subcontractors; the other does not. Aside from those differences, I do not see any other significant difference in the audit access granted to the Comptroller General of the United States or authorized representative.

Am I missing something?

 

 

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Here 2 help: I think you're missing paragraphs (b) and (c) in 215-2. You compared paragraphs (d) in both 215-2 and 212-5, and of course found them to be very similar. I'm interested in what is covered by (b) and (c) of 215-2, which talk about "all records." It sounds like "transactions" are a subset of "all records," especially since 215 talks about all records and transactions, whereas 212 only talks about transactions. 

I know that the FAR can be inconsistent, and even sloppy, in its use of terms. But sometimes terms have a precise meaning. Which is it here? While this is not an active issue right now, I do have internal customers who want to know the risks of dealing with the government, and one of the things they always bring up is audit rights. It would be useful to be able to explain exactly what could be audited in a commercial item contract.

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29 minutes ago, Fara Fasat said:

Here 2 help: I think you're missing paragraphs (b) and (c) in 215-2. You compared paragraphs (d) in both 215-2 and 212-5, and of course found them to be very similar. I'm interested in what is covered by (b) and (c) of 215-2, which talk about "all records." It sounds like "transactions" are a subset of "all records," especially since 215 talks about all records and transactions, whereas 212 only talks about transactions. 

I know that the FAR can be inconsistent, and even sloppy, in its use of terms. But sometimes terms have a precise meaning. Which is it here? While this is not an active issue right now, I do have internal customers who want to know the risks of dealing with the government, and one of the things they always bring up is audit rights. It would be useful to be able to explain exactly what could be audited in a commercial item contract.

I'm sorry. Your original post seemed focused only on the Comptroller General access. That's what I answered. Apologies if I misinterpreted your question.

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No problem. I was trying to keep it succinct. Let me try this: the Part 15 clause has (b), (c), and (d), whereas the Part 12 clause only has (d). So what are the "all records" covered by the Part 15 clause, that are more than the "transactions" in both clauses? What's the difference, especially since the government only has the right to examine "transactions" under Part 12?

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2 minutes ago, Fara Fasat said:

No problem. I was trying to keep it succinct. Let me try this: the Part 15 clause has (b), (c), and (d), whereas the Part 12 clause only has (d). So what are the "all records" covered by the Part 15 clause, that are more than the "transactions" in both clauses? What's the difference, especially since the government only has the right to examine "transactions" under Part 12?

While I think about this question, let me offer my first observation. You are wrong that the government only has the right to examine transactions under Part 12. Read the clause again. Both clauses expressly mention "records" and both clauses reference FAR 4.7, which establishes record retention periods. The Part 12 access pertains to records involving transactions directly related to the contract, whereas (as you note) the Part 15 clause is more expansive. But to my mind your focus should be on records not transactions.

More to follow as time permits.

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51 minutes ago, Fara Fasat said:

It's "records involving transactions," so I see the limiting term as "transaction." If it wasn't something different, why not just say "all records" like Part 15 does?

Well, I can't speak to the FAR Council's intentions. If the term is ambiguous, interpret it to your advantage. Contra proferentem.

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In reading this thread I had this thought.  Doesn’t GAO define the term?  In my research it seems that the matter as a statutory authority of the GAO has been litigated and possibly the case law standard is this case, Eli Lilly & Co. v. Staats.  A cut and paste of the case to your internet search engine will result in a find.  I say "possibly" as I stopped short in doing extensive research on the specifics raised by the OP, that being the wording difference between FAR clauses.

So my overall conclusion is that looking to the FAR or common dictionary definitions is not enough and looking to case law will yield a conclusion that, well, most likely depends on the situation.

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I read Lilly, and it only addresses the scope of the "records directly pertinent ...", not the difference between all records and transactions. I would argue that the "directly pertinent" discussion would apply to transactions as well, but it still doesn't help on the difference.

There doesn't seem to be much else out there, so I'll try to trace back in the federal register to when 212-5 was first added to see if there was an explanation, or any public comments on it. 

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1 hour ago, Fara Fasat said:

There doesn't seem to be much else out there, so I'll try to trace back in the federal register to when 212-5 was first added to see if there was an explanation, or any public comments on it. 

Agreed about where you are heading. My take is as follows: Commercial deals can get a Comptroller examination but negotiated deals can get a Contracting Officer and/or Comptroller examination. I am finding it difficult to argue that a transaction is excluded from examination by the Contracting Officer because I think it is a document or other data record. The Contracting Officer review is more expansive because of the negotiated transaction. I think FAR writers were probably just trying to incorporate in (d) the statutory Comptroller examination language per 50 USC 1433, and then came up with their own language in the other paragraphs which they thought was better for overall understanding by Contracting Officers and Contractors in negotiated contracts.

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Slight correction to your post Neil: we're not saying that transactions are excluded from anything. Transactions are in both clauses. 215-2 talks about all records and transactions, whereas 212 only talks about transactions. We're trying to find out what the difference is, and if there is anything in "all records" that would not be a "transaction. That would shed a light on what could be excluded from an audit in a commercial item contract.

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OK, here's what I found:

52.212-5 was originally proposed in 60 FR 11198; March 1, 1995 and 60 FR 15220; March 22, 1995. However, the earlier version omitted the audit provisions for some contracts. To remedy this, a correction was issued (60 FR 17184, April 4, 1995) that added subparagraph (d). 

That's it -- no explanation for the use of the word "transaction" or how it differs from "all records" in the Part 15 clause. Unless someone has actual experience they can relate (i.e., 'we objected to their document request because it was not related to a transaction'), then I guess we can go no further. If I were faced with a broad request for records, I would borrow from the accounting definitions and argue that it is limited to documents relating to sales, purchases, and similar transactions. Anything else (internal costs, labor rates, etc) is not a 'transaction.'

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.

23 hours ago, Fara Fasat said:

215-2 talks about all records and transactions, whereas 212 only talks about transactions. We're trying to find out what the difference is, and if there is anything in "all records" that would not be a "transaction." That would shed a light on what could be excluded from an audit in a commercial item contract.

You can argue whatever you think is best. Not clear to me what situation is contemplated.The 212 and 215 clauses would not normally be included in the same contract. It sounds like you concerned only with a contemplated "broad request" from the Comptroller General under a 212 clause included in a contract, and you are questioning what records could be included in the examination. If the 212 clause is included in the contract, the 215 clause is not relevant. However, if it was, the definition of records appear to me to be  essentially the same in -5 and -2 clauses with respect to the Comptroller General examination. I don't seem to grasp exactly what you see as the issue there, which I thought you seem to have alluded to above as an issue. My view is that Clause 212 (d)(3) does "talk about" records and (d)(1) about transactions. Your view above seems to be different when you state "212 only talks about transactions." The definition of records in 212 is so broad that any record that is pertinent involving transactions related to the contract would be subject to examination. As you say, a lot turn on what the transaction is. Above you seem to state that labor rates and internal cost are not transactions related to the contract. I see those items as records more than transactions.The Comptroller examination request should define what transaction is being examined. To promise another party what they are in advance seems risky. For example, if the Comptroller perhaps was interested in whether a commercial firm hired a former government employee as its officer in an impermissible way, and it perhaps involved unlawful payments which may have been included in the firms commercial item costs. To me, that salary, overhead or direct costs, etc, should be records that are subject to examination by the Comptroller relative to the hiring transaction.        

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On ‎1‎/‎23‎/‎2020 at 11:09 AM, Fara Fasat said:

I read Lilly, and it only addresses the scope of the "records directly pertinent ...", not the difference between all records and transactions. I would argue that the "directly pertinent" discussion would apply to transactions as well, but it still doesn't help on the difference.

There doesn't seem to be much else out there, so I'll try to trace back in the federal register to when 212-5 was first added to see if there was an explanation, or any public comments on it. 

Okay but at the risk of repeating myself, but stated another way - the FAR is not going to answer your question.   The authority of GAO and what they believe is their right is going to.  You noted that you reviewed Lilly so I am not quite sure how in depth you have dug on the entire subject.  By example did you review the Budget and Accounting Act of 1950, the associated  31 USC 712 and 719, the GAO Red Book and its extensive use of the word "transaction",  a very old GAO resource on FAQ's https://www.gao.gov/assets/690/680016.pdf  and its discussion of "audit" , the audit procedures of GAO itself and on and on?

On ‎1‎/‎20‎/‎2020 at 10:27 AM, Fara Fasat said:

Does anyone have experience with an audit under Part 12, and specifically what a "transaction" is? There is no separate definition of a transaction in the FAR, although the word is used extensively. 

No I do not have experience.  The FAR is less than perfect sometimes in its wording.  The GAO is going to exercise their authority pursuant to 31 USC 712 as they believe they are entitled.  You are either going to argue with GAO that they can not look at something  or not, based on what you believe is a "transaction" versus what they believe is a transaction all the way to the Supreme Court (or quite not) as Lilly did and either win or not.  Or stated another way, which by my read others have already done,  you are never going to get an answer until GAO comes a knocking.

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