DCAA Compliance Blog

Government Contracting News and DCAA Information for Contractors

ReliAscent LLC specializes in FAR compliance, DCAA compliant accounting, and government contract management/administration for Federal Government contractors and grantees.  In our DCAA Blog, we discuss the latest government contracting news from the Federal Government, the DCAA, and DCMA.

While the best way to maintain compliance with government requirements is to hire our experts, we hope our blog gives you some valuable insight into this complex environment.

We hope you will visit and take part in the discussions on our blog on a regular basis. If you ever have any questions or would like to discuss how our experts can help, do not hesitate to contact us at any time!  

To browse our extensive library by topic, use the form to your left and search by tags.

DCAA Compliance & Accounting Services

Fixed-Fee Clause Confusion

Posted by Dave Donley on Wed, Jul 19, 2017 @ 01:30 PM

All cost-plus type contracts (other than construction contracts), will cite the FAR 52.216-8 fixed-fee clause. Its main purpose is to mandate that contracting officers withhold up to 15% of the total contract fixed fee (but no more than $100k) as a reserve “…to protect the Government’s interest.”

The confusion comes in on how this is applied to a contractor’s monthly cost-plus billing. Customarily, contractors are allowed to bill full fee incrementally (i.e. monthly) up to 85% of the total contract fixed-fee value. Once the 85% level is reached, fee is no longer billed, only costs.

A Second opinion

The trouble comes when some DCAA auditors interpret the clause to mean 15% of the calculated fee should be withheld from each invoice.

The clause is admittedly vague on the precise method to be used to withhold fee. Some contracts attempt to clarify with language such as:

Subject to the withholding provided for in the clause of this contract entitled 'Fixed Fee', … this fixed fee may be paid, as it accrues in monthly installments…”

This language still leaves open the question of whether the “accrued fee” includes the withholding of 15%.

As it is, the DCAA position is not in the contractor’s favor from a cash flow perspective, and is perhaps taking advantage of the vague regulatory language to gain some financial leverage, however small, for the government. Arguing with DCAA auditors who take a hard line on this also holds up the billing process and creates stress until the issue gets resolved.

Active measures

Should this be raised as an issue by DCAA or other government billing authorities, our experience is the customary practice described above should be followed, where fee is fully billed as a percentage of cost until the 85% total fee level is reached. If that’s not enough to convince the DCAA, then the issue should be brought up with the Administrative Contracting Officer (ACO/DCMA). If the DCAA is insistent, try to convince the ACO to add language to the contract such as:

“Fixed Fee may be billed at the negotiated percentage of costs until the cumulative billed fee amount is 85% of the total contract Fixed Fee.”

Proactive measures

If this issue continues to occur because of a policy decision by either your local ACO or DCAA representatives, consider negotiated a fixed-fee clause directly into your contract. A close reading of the fee clause suggests the withhold can be anything up to 15%. Internal government instructions also suggest contracting officers should articulate which method of billing is preferred. Since you typically negotiate the new contract with the Procuring (Project Office) Contracting Officer (PCO) and not the ACO, leaving this negotiating point to the interpretation of others (ACO and DCAA) invites confusion and conflict when it’s time to bill.

Topics: Fixed Fee Contracts, Fixed Fee Clause, Fixed Fee, DCAA Fixed Fee

IP Protection Seminar with ReliAscent Partner, Martensen IP

Posted by Tyler Link on Mon, Jul 10, 2017 @ 11:02 AM

ReliAscent partner, Martensen IP (a Colorado Springs-based IP protection and government contracting law firm), is hosting an event for contractors tomorrow, at the Catalyst Campus for Technology & Innovation, in Colorado Springs. Protecting your IP is critical in the Federal Government Contracting realm (especially for SBIR/STTR contractors and grantees), and we encourage our clients and other Colorado-based defense contractors to attend if you have the chance.

INNOVATION WITHOUT PROTECTION IS PHILANTHROPY. 

IP Protection

"INNOVATION WITHOUT PROTECTION IS PHILANTHROPY."  — Mark Blaxill

If you've heard that protecting IP is important, but you're not sure why, this presentation will help. Because IP security isn't just part of the ballgame, it is the ballgame. And there are certain "musts" that are bare minimums for you to consider and implement. 

Local attorney and former Air Force fighter pilot Michael Martensen shares his decades of experience with a concise, insightful talk that will address some IP myths

  • Protecting IP is futile when dealing with the government.
  • In the government space arena, IP concerns are a waste of time and money. 
  • Commercializing IP derived from government contracts is impossible.
  • The prime contractor will take my IP and underbid me.

A light breakfast and coffee will be provided to attendees. 

To register for the event, click here now!

 

Topics: IP Rights, IP Strategy, IP Protection Lawyers, SBIR IP Protection

INTELLECTUAL PROPERTY CONSIDERATIONS IN GOVERNMENT SPACE AND CYBER

Posted by Michael Martensen on Wed, Jun 28, 2017 @ 10:03 AM

A survey of landmines that may await you, and an advantageous roadmap to guide you away from danger with sound pointers on how to protect your IP while operating in the government sphere.

You’ve just won that awesome government contract under a Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) award for a prototype space widget or new cyber application – great! Now try keeping your intellectual property (IP) rights – it’s harder than you might think.

That’s because a number of obstacles seemingly conspire to prevent your keeping your hard-earned IP rights; IP you’ve created through sweat equity, research and development, and long hours of trial and error.

 

SIGNIFICANCE OF SPACE & CYBER IN OUR COMMUNITY

Colorado Springs is home to Air Force Space Command (AFSPC), the Department of Defense (DoD) lead agency for all-things-space-and-cyber. The role of cyber in the military arena has become increasingly important, especially in the wake of myriad military and civilian network attacks from state- and non-state actors over the past few years. Space has become increasingly important as well, as cyber capabilities become more and more reliant on space transmission paths for our globally connected world.

As a result – especially in Colorado Springs – space and cyber share top billing in today’s “must-have” lineups for DoD. Every year, DoD alone awards $135-150 billion in government-sponsored R&D funding. And it’s all undiluted capital. “Undiluted” means the government doesn’t take a cut of your company (unlike angel investors or venture capitalists) so you retain what the government gives you without giving up ownership of your company. The downside is that’s a lot of money and it comes with many strings, so it’s important to understand how those strings work.

 

ESSENTIAL IP FUNDAMENTALS

Let’s start with the basics: By “IP” we are referring to the four major forms of intellectual property – patents, trademarks, trade secrets and copyrights – along with the contractual pieces that augment these forms (licensing agreements, nondisclosure/non-compete agreements, etc.). At the risk of over-simplifying the definitions of each, patents protect widgets, processes and chemical compositions (inventions); trademarks protect logos and branding (your company’s “name”, as presented to the public); trade secrets protect your company’s “secret sauce” (profit margins, customer lists, and other information you wouldn’t want your competitor to know); and copyrights protect expressions (your company’s written works and other information reduced to recorded media).

Each form of IP has its own set of requirements to secure IP rights under that form of protection, and the types are not mutually exclusive: A single item can comprise all four forms. For example, computer software object or source code is copyrightable; its analytical aspects (its actual functioning) can be patentable; the know-how and source code itself are likely trade secrets; and the name or logo of the software can be trademarked.

These “IP basics” are greatly complicated by government acquisition and contracting regulations. Again, let’s start with the basics – here, government-contracting basics with respect to IP. The general rule for government contracting in the DoD world is that when the government funds development of an invention or software, the inventor or software developer retains original IP rights in the invention/software and the government gets a license of some sort, depending on the extent to which the government funds the effort. If the government fully funds the invention, it gains so-called “unlimited rights” to the invention/software.

At the other end of the spectrum, if the inventor/developer develops an invention (or software) with no government funding, the government gains “limited rights” (“restricted rights”, for software). In between the two extremes lies mixed government/private funding and “government purpose rights”. These three categories make up the “spectrum” of government rights under most federal acquisition regulation (FAR) supplement (generically, “FAR-Supp”) rules, supplements for the Department of Energy and NASA being the two notable exceptions (which will not be dealt with here).

 

WHAT ARE MY RIGHTS?

Let’s look closer at these categories. Limited/restricted rights give the government the same rights as any other commercial customer: The government gains a limited/restricted license to use the invention or software, but it cannot transfer that right and it can only use the invention/software – it can’t make it or authorize anyone else to do so. With government-purpose rights, the government can authorize another to make or use the invention/software (i.e., it can transfer and/or delegate its rights), but only for “government purposes” (i.e., use by/for the government). Finally, with unlimited rights, the government can authorize another to make/use the invention/software – again, certainly for government purposes – but the “jury is still out” as to the extent or if the government can authorize another to commercialize (i.e., use in the broader non-government markets) an invention or software developed by an inventor/developer on the government’s dime.  

This question has not faced a court test, yet, but the consensus is that the government can do so when the inventor/developer has not properly marked the invention/software according to FAR or FAR-Supp requirements, to identify actual ownership of the IP.

 

Remember: The basic rules of IP still apply, even in government contracts.

However, the rights afforded by the particular form of IP (copyright, trademark, etc.) vary according to the contract you have with the government (or with a “Big Prime” contractor – a whole other issue, to be dealt with in another article). In each case, you own the IP, but the government gets a license to your IP – the relative strength of that license varies as outlined above.

What’s the practical upshot of all these rules? First, protecting your IP up-front is critical.

To the extent you can develop your invention or software before signing an agreement with the government you should do so.

At the very least, your agreement should recognize your private-fund contributions, so that you enjoy a minimum of government-purpose rights, which provide you more IP rights than unlimited rights. Second, mark any “deliverable” (the thing/service you owe the government under the contract) according to the applicable FAR-Supp, to identify the material as yours. Even if the government has unlimited rights, those rights are not truly “unlimited” – you still retain ownership of the IP, but in cases where the government wants to “give” your IP to another, you can instead grant a limited license to your competitor, limited to the specific purpose of making/using the “deliverable” specifically for the government only. Your competitor would not have the ability to commercialize your invention/software beyond the governmental marketplace, in that case. 

 

THE GOVERNMENT’S CHOICE

Why would the government with unlimited rights in your IP go down this path? Because it’s easier and the government still gets what it needs. Third, ensure your “deliverable” includes only those items/services the government requires under the contract. This is key. In most cases, the government doesn’t need your source code, machine, machine tooling or any other collateral pieces you needed to make the deliverable (i.e., the executable software or end-state “widget”); don’t give these up by including them in your deliverable suite, and ensure the contract reflects this philosophy, as well.

Beyond these three “musts”, here are some general guidelines for each IP area. Don’t hesitate to talk to anyone on the Martensen team for more detailed explanations for each of these:

 

Patents

  • Keep your ideas to yourself before you file: “Disclosures”, as defined by the U.S. Patent and Trademark Office (USPTO), can sink your patent even before you file!
  • File ASAP – file a provisional patent as a first step (except in extreme circumstances).
  • Identify the no-kidding “invention” – the “kernel” of the invention is what’s important, and it must be related to why people buy your product (otherwise, why patent it?).
  • Document everything related to your invention, and keep clear accounting of your funding source(s).
  • Publish (ASAP), if you’re not going to file, as a defensive measure to avoid future infringement claims.

 

Copyrights

  • Mark your work using either the marking guide from the U.S. Copyright Office (USCO) or the applicable FAR-Supp, as appropriate.
  • Register any published copyrighted work; mark any government-funded work as an “unpublished work”, to the extent it is not
  • Put “markers” in your work as a Rosetta Stone to identify your work in future infringement actions.
  • If your copyrighted work is source code, follow USCO’s rules to redact it (unless you’re keeping it as a trade secret).

 

Trade Secrets

  • Know your state’s trade secret statutes.
  • Identify your company’s specific secret(s) and protect them.
  • Use non-disclosure agreements (NDAs) & know NDA “best practices”.
  • Segregate secrets (e.g., nukes & Coke’s formula) so that one person doesn’t know “the whole story”.

 

Trademarks

  • Choose your mark carefully (because it’s you: your company’s “face” to the rest of the world).
  • Do a thorough mark search (not just local/state).
  • Ensure your mark is continuously used in commerce.
  • Be vigilant – protect your mark (through thorough, periodic TM/SM searches).

 

These suggestions are necessary but not sufficient to fully protect your IP in governmental spheres. That said, they will help you better understand the most common pitfalls associated with government contracts as well as the easiest ways to avoid them. Small, innovative companies will soon be able to take advantage of “undiluted capital” made available by the government – especially DoD – in large quantities within the space and cyber fields.

The important thing is to be able to take advantage of this vast source of funding without stepping on any landmines inherent in such activities. Of course, a comprehensive IP strategy tailored by IP professionals is the best way to ensure your company’s IP is fully protected: The team of professionals at Martensen stands ready to arm you with the competitive edge your intellectual property controls in government contracts.

-Michael Martensen, Founder
 Martensen IP
 mike(at)martensenip.com
 719-358-2254

Topics: IP Rights, IP Strategy, IP Protection Lawyers, SBIR IP Protection

New ReliAscent White Paper: "An Introduction to Indirect Rates"

Posted by Tyler Link on Thu, Jun 22, 2017 @ 11:11 AM

Indirect Rates White Paper

ReliAscent is proud to announice the release our latest white paper: "An Introduction to Indirect Rates."

This white paper, written by ReliAscent AE Dave Donley, is the fourth in our monthly series on important Federal Government contract administration & management topics, and we encourage contractors to read and share these valuable resources among their colleagues.

From managing your indirect rates, to accurately preparing a cost proposal, our series covers the contract management issues that impact every federal contractor's profitability and success; whether they know it or not!

Get your copy of "An Introduction to Indirect Rates," now!

We hope you find this white paper useful, and please feel free to contact us at any time, should you have questions about our government contract accounting, contract management, or outsourced CFO services for contractors.

Topics: Indirect billing rates, Indirect rates

ReliAscent Releases Our Second Newsletter of 2017

Posted by Tyler Link on Fri, Jun 16, 2017 @ 01:49 PM

DCAA Newsletter - ReliAscent

ReliAscent is happy to announce the release our second newsletter of 2017! In this issue, we feature an article on Fringe Benefits, Deltek® Pulling Support for its GCS Premier® Software, and more.

To download your copy of ReliAscent's latest newsletter, click here now!

As always: if you ever have any questions about FAR & DCAA compliance, our services, or government contracting in general, please do not hesitate to call or email us at any time (and if you haven't joined our newsletter distribution list yet, fill out the form on the left to sign up).

Have a great weekend!

Topics: Deltek, Deltek GCS Premier, newsletter, fringe benefits

Contractor Code of Business Ethics and Conduct

Posted by Mike Anderson on Mon, Jun 12, 2017 @ 01:35 PM

Without getting too political, I thought it might be timely to review a FAR clause that appears in many Federal Contracts but probably doesn't get enough attention. Section 3 of the Federal Acquisition Regulations (FAR), Subpart 10, calls for contractors to "conduct themselves with the highest degree of integrity and honesty".  It also requires a written code of business ethics and conduct be created within the company.  Wouldn't it be nice if politicians were required to abide with FAR 3.10?  This clause is usually brought into the contract when the Contracting Officer inserts FAR 52.203-13 into the terms and conditions of the contract.  This usually only applies when the contract is more than $5.5 Million and has a period of performance of longer than 120 days.  FAR 3.1003 does indicate that the policy of FAR 3.1002 should apply to all Government contractors where the written code may not apply unless the above specified contract thresholds are exceeded.  I also think it is still a good idea to impose this clause upon yourself as a business just as good business practice.   FAR 3.1003 goes on to say that if a contractor knows of a violation of Federal criminal law involving fraud, conflict of interest, bribery or gratuity violations (found in Title 18 of the United States Code or a violation of the civil False Claims Act) that the contractor may be suspended and/or debarred.  This includes failure to report these violations in a timely manner.  You can see that the penalties are serious and not to be taken lightly.  So, why not go ahead and just establish the policy and written programs addressing these issues in the early stages of your business?  it is a good business practice and can ease your transition into larger contracts. This is one of the flowdown requirements that you need to be aware to flow down to subcontractors, when applicable.  Many small business owners just think that these things are common sense and take them for granted.  The government agrees that they should be common sense, but the government doesn't take anything for granted.  I think in today's complex business world, with too many reality shows on TV and a growing attitude that the ends justify the means, these type of programs are more and more necessary.  If you have difficulty deciding where to start, please don't hesitate to reach out to us at ReliAscent. 

Topics: Ethics

Contract Cost Proposals - Setting Yourself Up For Success

Posted by Tyler Link on Thu, Jun 08, 2017 @ 01:45 PM

Government Contract Cost Proposals

In the world of government contracting, one of the most painful—yet easily preventable—mistakes contractors and grantees make, is making critical errors in the cost & pricing section of a proposal.  While putting together a list of estimates for things like time, materials, equipment, and travel may sound easy enough, the unfortunate reality is that many contractors have trouble with this section (or they simply opt for the “safe rates”), and quickly find themselves in a money-losing contract.

In reality, putting together a proper cost proposal is no small task.  There are different rules and rates, pools and bases, awarding agency requirements, and other factors to consider.  There are also certain steps one needs to take when calculating rates, or when estimating your labor hours.  Make a mistake, and even the drastic step of reducing your fee to ZERO means many contractors still end up losing money on a contract!

At ReliAscent, our team of contract management and DCAA compliance experts have over 150 combined years of contract management and cost proposal preparation experience, and we can help to ensure you set yourself up for success from the start. 

To learn more about how ReliAscent can help, download our latest white paper: “Preparing a Government Contract Cost Proposal,” and/or contact us at any time.

Topics: Cost Proposal, contract cost proposals

ReliAscent Releases it's Latest White Paper: "Preparing a Government Contract Cost Proposal."

Posted by Tyler Link on Wed, May 24, 2017 @ 10:54 AM

Cost Proposal White Paper

ReliAscent is happy to announce the release of our latest white paper: Preparing a Government Contract Cost Proposal.  This white paper is the third in our monthly series on important government contract administration & management topics, and we encourage contractors to read and share these valuable resources among their colleagues.


From managing your indirect rates, to contract reviews, terminations and closeouts, our series covers the issues that impact every government contractor's profitability and success; whether they know it or not!

TO DOWNLOAD YOUR COPY, CLICK HERE NOW.

Please feel free to contact us at any time, should you have questions about our government contract accounting, contract management, or outsourced CFO services, and have a great Memorial Day weekend!

Topics: Cost Proposal, preparing a cost proposal

Government Contracting 101 - Part 7: How does the government pay for my research?

Posted by Brian Ormsby on Thu, May 18, 2017 @ 09:28 AM

There are several ways that the government can help fund your research.  The first is through a direct need from the government and direct funding under a grant or contract written specifically for research and/or development.  There are many avenues to assist in this type of funding.  FAR Part 35 discusses Research and Development Contracting.  There are also several programs designed for small businesses that we discussed earlier in this blog series in “Blog 4 – What is the role of small business in Government Contracting?”.   These programs include the Small Business Innovative Research (SBIR), Small Business Technology Transfer (STTR) and Federal and State Technology Partnership (FAST) programs designed specifically for this purpose.  There are also solicitations in the Broad Area Announcements (BAA) for fulfilling government needs and desires for developing new products and technologies.

The government will also indirectly fund contractor research and development efforts under the Independent Research and Development (IR&D) costs pool for almost any government contract, whether it is for R&D or not.  IR&D is a General and Administrative (G&A) costs sub-pool.  IR&D is defined in the FAR as follows:

Per FAR Part 31.001 – “Independent research and development (IR&D) cost” – means the costs of effort which is neither sponsored by a grant nor required in performing a contract, and which falls within any of the following four areas:

  • Basic research
  • Applied research
  • Development, and
  • Systems and other concept formulation studies.

How do you know if you are performing an authorized IR&D function?  Per FAR Part 31.205.18 – IR&D costs are allowable as indirect expenses on contracts to the extent that those costs are allocable and reasonable.  In order for IR&D costs to be allocable, you just have to have an accounting system that is compliant so that IR&D is allocated equally amongst your programs. 

What is the definition of reasonable?  There is some subjective determination on the reasonableness of IR&D costs.  Here are a few rules of thumb:

  • You have some expertise in the area of research. In other words, you aren’t an ASE certified mechanic trying to solve the problems of nuclear waste.
  • You have justification for the costs:
    • Timekeeping to document the amount of efforts
    • Backup documentation for purchasing
    • Statements of Work for Subcontracts
    • Statements of Work for Consultants
  • You have a defined goal that your research is going to achieve
  • You have set measurement criteria for the research to determine if you are advancing

In short, IR&D topics need to be run like any other contract; it is just an internal contract with yourself.  If you are performing any experiment and you don’t have criteria for success or results of measurements, then you aren’t doing research, you are just playing!  The government is not interested in paying for follies of fancy (they want to fund real research, independent or not).

If you have questions about setting up and IR&D project, please contact ReliAscent (303) 999-3802.  We can help you ensure that you are advancing your corporate intellectual property and you can be assured that the costs of that effort will not be disallowed by an auditor in the future.

- Brian Ormsby, ReliAscent

 

 

Topics: Government funding, R&D Funding, Government Funded Research, Getting the Government to Fund Your Research

Government Contracting 101 - Part 6: Agency Differences in Unallowable Costs

Posted by Brian Ormsby on Tue, May 09, 2017 @ 09:05 AM

In the world of Government contracting, the government defines an allowable cost as a cost that they will pay either in full (direct costs) or an allowable portion (allowable indirect costs) of that cost.  An unallowable cost is one that the government has stated that they will not reimburse the contractor for the expense.   All agencies start with the Federal Acquisition Regulation (FAR) Part 31.201-6 to define unallowable costs and discusses how to account for unallowable costs.  FAR Part 31.205 discusses specific costs and discusses whether they are allowed or not (it is not an all-inclusive list, however it is fairly comprehensive).  Each agency can add to this list, however, with agency specific guidelines.   For instance, there are Defense Federal Acquisition Requirements Supplements (DFARS), Department of Energy Acquisition Regulation Supplement (DEARS) as well as similar guidelines for other agencies.  In addition, there are differences in requirements between contracts and grants.  There is further delineation between awards to “For-Profit Organizations” as opposed to “Non-Profit Organizations” or “Educational Institutions” or “State, Local &/or Indian Tribe Governments”.   Here are some examples of other agency restrictions for “For-Profit” Organizations (not all inclusive):

National Institute of Health (NIH) (48 CFR 74.27)

  • All FAR unallowables
  • Limitation on Salary, anything over is unallowable
  • Independent Research and Development (IR&D)
  • Sales and Marketing
  • Business Development, Commercialization costs

National Science Foundation (NSF) (48 CFR 31.201-6 – Contracts & 2 CFR 215.27 - Grants)

  • All FAR unallowables
  • All Patent Costs
  • IR&D
  • Sales and Marketing
  • Business Development

Department of Energy (DOE) (10 CFR 600.317)

  • All FAR unallowables (FAR Part 31)
  • All Patent costs (Phase I SBIR only – Patent prosecution costs for all funding)
  • Foreign Travel

Regardless of which agency you deal with, you must make sure that all the unallowable costs are not billed to the government.  How do you ensure that unallowable costs aren’t billed to the government?  First of all, you must segregate your unallowable costs under general ledger control in your accounting system. You must ensure that all unallowable costs are input into this section and that these costs don’t end up in your direct or your indirect costs that are billed to the government.  When a contractor is dealing with multiple government agencies, this can be a bit tricky as some costs that are unallowable for one agency could be an allowable cost for another agency. 

It is imperative that you handle your unallowable costs correctly.  If you are audited and unallowable costs are found to be in you allowable areas (direct or indirect), they will be disallowed and you will end up owing the government money.  That is not the only implication, generally, your accounting system will also fail the audit based on this finding and you may be debarred from any future Federal Government contracts.

If you have questions about unallowable costs, how to handle them in your accounting system and anything else concerning unallowables, please contact ReliAscent (303) 999-3802.

- Brian Ormsby, ReliAscent

 

 

Topics: Unallowable Cost, DCAA Unallowable cost, unallowable costs