DCAA COMPLIANCE BLOG
Your Source for DCAA News and Government Contracting Information
Well, as with anything from the government, there appears to be conflicting rules being issued. At first glance when you look at 15 U.S.C. 644 (g) (1) it requires that a minimum of 23% of the value of all federal prime contracts issued are being issued to small businesses. President Obama issued a memorandum (Memorandum for the Heads of Executive Departments and Agencies,Subject: Government Contracting, dated March 4, 2009) that called for 5 main objectives including to clarify the role of when functions should be performed by federal employees and when independent contractors may be used. When you consider this memo and read between the lines of actions by this administration it is clear that the size of the government workforce will be growing. If indeed that is the case, will it not take more of the federal contracting "pie" from small businesses? Most of the small business content has consisted of services provided to the government so by pulling more work into the government itself, this would logically have to reduce some of the small business contracting, wouldn't it? I know this is not the intent of the administration and if you ask, they will certainly say that is not the case. I rather suspect that this requirement will put more pressure on existing federal employees that are involved with the procurement of goods and services for the government, the contracting officers. As most small business people that do work with the federal government learn, the contracting officer (CO) is in control of your situation in a government contract. If the workload of the CO becomes more difficult, they will try to maximize their effectiveness by taking the path of least resistance. What this means to small business is that they must take extra care to make sure they meet the requirements of the RFQ and make the CO's job as easy as possible. This includes making sure your accounting system meets all the FAR guidelines and your indirect billing rates are up to speed.
In case you weren’t watching, there were some significant changes to the Federal Acquisition Regulations (FAR) recently. The Secretary of Defense issued a Federal Acquisition Circular Number 2005-37 on October 14, 2009. Of the 7 changes implemented in this document, item V (Limitations on Pass-Through Charges (Interim)) has the most severe impact. This change restricts what they call “excessive pass thru charges” by contractors from subcontractors. Basically if the contractor has a subcontractor with more than 70 percent of the total cost of work to be performed on the contract, the contractor cannot receive indirect costs or profits on this subcontract. This restriction is effective October 14, 2009 (it is now in effect)! Many contractors may not be aware of the change. So the amount of work put on the contractor just grows. It is becoming more difficult for the average small business owner to know how to safely fulfill requirements of government contracting. It is clear small business needs help in the area of government contracting now more than ever.
We are continuing to see more discussion about the DCAA and whether or not it should continue to function out of the Department of Defense or whether it should be it's own independent agency. One side says that there is a conflict of interest of sorts. The DCAA lacks independence over the contractors that it oversees because the Defense Department is doing business with those contractors. They further believe that pressure from outside groups is the reason for shoddy audit practices and approval of substandard systems. This seems to be supported by the fact that when the GAO reviewed 69 audits performed between 2004 & 2006 they found that 65 of these audits were faulty in some regard. This has caused the DCAA to issue "get tough" messages to their auditors (see our blogs; "DCAA to get tougher (again) and may become more influential" and "DCAA 2008 Year End Guidance - Happy Holidays, Government Contractors"). There are several US senators, namely Sen. Tom Coburn, R-Olka. and Sen. Joe Lieberman, I-Conn., that want to re-design the DCAA and make them an autonomous agency to cure the problems. The comptroller of the Pentagon, Robert Hale, strongly opposes this move and feels that the DCAA should continue to report to him. The DCAA itself has not only issued the above referenced "get tough" directives to their auditors but they are also prioritzing their audit plan for 2010 to focus on high-risk, high-dollar value audits. They also have changed the way they evaluate their auditors, focusing more on adherence to audit standards than to the number of audits performed. All auditors have also been given refresher training focusing on increasing the quality of the audits.