Audit of Proposal

[siwilliams]

My company has completed negotiations with the prime on a govt contract. We have a confirmation of negotiations memorandum and my company has signed and submitted to the prime the Certificate of current Costs & pricing. The subcontract remains undefinitized as the prime says they're waiting for an audit by the government. It's my understanding that the government will not audit an already negotiated subcontract because it's of no benefit to them at that point. Prime also wants a reopener. Anyone ever have a similar situation? Would the govt audit an already negotiated agreement?

[InNeedofWisdom]

This sounds familiar. Let me give you a hypothetical example that may or may not apply to your situation:

The sole/single source contractor for a DoD prime contract has reached an agreement on price with a sole/single source subcontractor subject to TINA. The prime contract is currently undefinitized, but will be FFP once negotiated. The negotiated subcontract will also be FFP, but is undefinitized pending negotiations and definitization at the prime level. The prime contractor is concerned that the government may not think its cost analysis was sufficient, and that the government might take issue with subcontract labor hours, number of trips, etc. So, the prime contractor wants DCMA to provide field pricing assistance (or DCAA to do a proposal audit, if the subcontract is big enough) to minimize the risk of a downward adjustment in the prime contract. The prime contractor wants a re-opener clause so that if there is a downward adjustment, it will be able to pass the subcontract cost of that adjustment down to the subcontractor.

I hope this hypothetical example gives you some insight into what the prime contractor might be thinking. I can think of a less-positive situation that might be going on, but I hope what is going on is something like the above example.

[siwilliams]

But the prime is requesting a rate audit instead of a full assist audit.

[joel hoffman]

But the prime is requesting a rate audit instead of a full assist audit.

From the info given, we don't know what type of contract is involved or if the prime contract has been awarded or not. At any rate, getting a DCAA audit is like pulling teeth these days so the prime and/or government might feel that a limited scope, rate audit would be more feasible or productive.

In my experience, I would not have been reluctant to have requested an audit after the subcontract was negotiated before proposal submission. I mostly negotiated new/mods/claims for construction contracts or construction/AE portions of Systems contracts.

[Retreadfed]

SI, there are a lot of things you have not told us. I would want to know whether the prime contract has been awarded, whether the subcontract is being negotiated in regard to a contract modification, did you submit pricing data to the prime which was disclosed to the government as part of the negotiation of the prime contract, if so were you audited by the government prior to award of the prime contract, what agency will do the audit?

As a general matter, DCAA will not conduct an audit at the behest of a contractor. DCAA will perform a self initiated audit or a demand audit requrested by a contracting officer.

[Guest Vern Edwards]

My company has completed negotiations with the prime on a govt contract. We have a confirmation of negotiations memorandum and my company has signed and submitted to the prime the Certificate of current Costs & pricing. The subcontract remains undefinitized as the prime says they're waiting for an audit by the government. It's my understanding that the government will not audit an already negotiated subcontract because it's of no benefit to them at that point. Prime also wants a reopener. Anyone ever have a similar situation? Would the govt audit an already negotiated agreement?

There is nothing unusual in any of that. The agreement between you and the prime is obviously contingent upon government approval of some aspect of it, and the prime does not want to commit to you before it knows that it will get the government's approval. I don't know where you got your "understanding" that the government will not audit an already negotiated subcontract, but your understanding is wrong. The government might audit subcontract rates, a subcontract proposal, negotiated agreement, or fully definitized subcontract for any number of reasons, assuming that it has the right to do so. See e.g., Defense Contract Audit Manual § 9.104.2.

[here_2_help]

Vern,

You are quoting the manual accurately but ignoring the reality as documented in recent DOD IG Semi-Annual Reports to Congress, Appendix D. Count the number of "post-award" (defective pricing) audits that DCAA performs in a recent six-month period. Spoiler: Not very many. Effectively zero, in fact.

If the prime was going to rely on a DCAA audit to inform its negotiations with the subK, wouldn't you expect the prime to wait for that report before agreeing to the price? I would. At this point, a DCAA audit report should be moot, unless it alleges fraud.

H2H

[Guest Vern Edwards]

help:

I accept what you say, but I stand by my response. I suspect that the audit in question, if there is one, is not post award. I suspect that the "prime" is a prospective contractor that has submitted a proposal to the government, that the subcontract negotiation in question is part of that process, and that the audit in question is of the prospective contractor's proposal. I think the "prime's" agreement on price is contingent, at best, and that the OP simply does not understand that.

But who knows what this is really about? I don't claim to. It's another Wifcon mystery situation from an anxious person on the Wifcon sanity check couch. "Here's a sketchy description. Someone, please tell me what's going on! PLEASE, HELP!!!"

There really isn't an answer. The OP has been given all the response that it deserves -- a quote from the manual.

[joel hoffman]

Vern,

You are quoting the manual accurately but ignoring the reality as documented in recent DOD IG Semi-Annual Reports to Congress, Appendix D. Count the number of "post-award" (defective pricing) audits that DCAA performs in a recent six-month period. Spoiler: Not very many. Effectively zero, in fact.

If the prime was going to rely on a DCAA audit to inform its negotiations with the subK, wouldn't you expect the prime to wait for that report before agreeing to the price? I would. At this point, a DCAA audit report should be moot, unless it alleges fraud.

H2H

At least two of us have informed siwilliams that more information is needed to properly respond to her questions.

H2H, if I were the negotiator, I would not necessarily accept a prime's "negotiated" proposal as the basis for settling with the prime. siwilliams has already informed us that the prime has put conditions upon the negotiations that allow for adjustment, should the government object to or otherwise question aspects of the proposal. In my experience on negotiated construction contracts and as an observer on A/E negotiations, the majority of primes did not deeply analyze subcontractor proposals (perform technical and cost analysis) nor did they have audit resources available to verify cost or pricing in sub's proposals. Often, all they have are comparative proposals for a rudimentary price analysis. Occasionally, the prime performed its own estimate for the work to be subcontracted and/or performed its own "make or buy" (self-perform or subcontract) analysis but those construction companies are rare these days. Those are the A-list primes.

There isn't enough detail to determine the specific situation here. I don't know about other government negotiators but as the government representative, I would likely seek an audit of an already negotiated construction subcontract agreement, if it met the criteria for an audit and if I needed the assist. As a minimum, I would analyze it myself (technical, cost, price) or have my team analyze it. I would not simply accept the fact that it has been negotiated. I've also seen too many sub/prime post award problems due to the prime's and/or sub's misunderstanding of the scope or the prime's failure to coordinate the division of the scope of work. These are often improperly passed off by the prime to the government as claims or REA's.

[here_2_help]

Vern,

Fair enough. If the prime is awaiting its own contract award before executing its subcontracts that would make some sense. (But why wouldn't the prime execute the subcontract with zero funding subject to a written Authorization to Proceed that would provide the funding to start work?)

Sigh. You're right. Another WIFCON mystery.

H2H