Government Contracts Update
I attended a seminar this week put on by a large national law firm focusing on the status of government contracts and changes that have occurred over the last year. I thought it would be a good idea to share some of what I learned in this blog. While the seminar was put on by lawyers for lawyers, and there were a large number of lawyers in the audience, it also was of great benefit to contract administration personnel and even some input for accounting personnel. The overall message I got from the session was that it is becoming increasingly difficult to follow all of the regulations when you are contracting with the Federal Government. The opening keynote speech was from a US District Attorney who indicated that the number of cases for fraud have been going up dramatically over the last couple of years. A graph was presented showing a dramatic increase in suspensions and disbarments (48% increase in debarments last year). With the extreme pressure on Federal Budgets, there is an enhanced focus on making sure the government is not swindled and an enhanced focus to detect and prevent fraudulent relations. There also was some discussion about the statute of limitations for prosecuting a case involving a government contractor. While there is normally a 6 year Statute of Limitations, there are ways that this can be avoided to the benefit of the prosecution so the advice to contractors is to 1) make sure you are doing things to ensure compliance with the contract requirements, 2) make sure to document what you are doing (including a basis for most decisions) & 3) make sure to save your records. The saving records is especially important as currently the DCAA is about 6-7 years behind in auditing ICP's so they are looking for records that old. If the Statue of Limitations is what lawyers refer to as "tolled" this period could be extended.
There also was quite a discussion about changes being proposed by the government regarding counterfeit parts. There have been some issues and abuses on this recently and certainly this ties in with the fraud issues discussed above. The government is proposing more regulations to ensure they do not purchase counter fit parts. These regulations could possibly evolve into a system similar to an ISO quality system or a DCAA type accounting system. If this happens, the result can only add more cost to the government procurement. This cost will be justified in that the government cannot afford to purchase parts that might fail under extreme conditions where US lives are at stake. Again, the message is that there could be more layers of regulations in the future when dealing in certain areas of Federal Supply.
There was a briefing about the DCAA and accounting systems. A lot of talk focused on areas that we have talked about before like the backlog of work within the DCAA, the audits as much as 5 to 6 years old and how the DCAA is more "pass-fail" today than ever before. As a result, Contracting Officers are using more withholds of some of the contract money. A Withhold puts a burden on the contractor to make sure that the situation is corrected or they stand to lose some of the contract value. Swift action by a contractor is required to remedy a Withhold if that is used on your contract. One of the other interesting observations is that the DCAA is still under intense scrutiny. The DOD Inspector General released a report in March this year reporting many of the DCAA's audits still do not meet their standards.All of this information tells me that the "rat maze" is getting more complex. And the potential risk of penalty of not following the maze is going up. Now more than ever, you need to make sure that you are doing your Federal Contracting correctly.