Current Initiatives May 2015

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1 DHG 20 th Annual Government Contracting Update Current Initiatives May 2015 Mr. Ken Saccoccia Deputy Director Page 1 One Agency One Mission DCAA Overview Priorities and Better Buying Power Small Business Outreach Available Checklists & Tools Subcontract Management Responsibilities Contractor Support Page 2

2 DCAA Overview Conduct contract audits and related financial advisory services Assist in determining whether contract costs are allowable, allocable, and reasonable Examine and review contractor accounts, records, and business systems Provide recommendations and advice to government officials responsible for acquisition and government contract administration Page 3 Staffing 5,400 5,200 5,160 5,108 5,000 4,800 4,725 4,851 4,712 4,938 4,907 4,891 4,806 4,913 4,708 4,600 4,400 4,200 4,179 4,328 4,057 4,126 4,471 4, Est 2015 End Strength Workyears Page 4

3 2015 Priorities Incurred costs audits High-risk, time-sensitive labor and material reviews Forward Pricing proposal and rate audits Disclosure statement audits Contractor billings - provisional billing rates, pre- and post-payment reviews Other high-risk and time-sensitive requests - i.e. terminations/claims Page 5 DCAA Commitment to Better Buying Power Achieve Affordable Programs: Should Cost Teams Establish baseline - what it does cost today Participate on should cost teams - providing expertise on contractor business systems and historical practices at contractor locations Leverage findings and recommendations Improve Tradecraft in the Acquisition of Services: Increase Small Business Participation Increase Outreach to Small Business Provide Educational Seminars Industry Group presentations Page 6

4 DCAA Commitment to Better Buying Power Incentivize Productivity & Innovation: Dedicated and increased audit resources for: Contract Closeout Pre-award Audits Reduce backlog of DCAA Audits without compromising effectiveness: Incurred Cost Initiative Low-Risk Sampling Risk Based Approach Forward Pricing Tailoring audits to focus resources on higher risk/priority audits Improving Proposal Adequacy and Timeliness Continue to work closely with DCMA to align processes to ensure work is complementary Page 7 Incurred Cost Strategy Eliminating the Incurred Cost Backlog is an initiative under DoD s Better Buying Power 2.0 Developed a multi-pronged approach to working down backlog in an effective manner Dedicated audit teams Multi-year audit techniques Increased staffing dedicated to Incurred Cost Implemented a low-risk sampling approach to performing incurred cost audits Page 8

5 12,000 DCAA is Making Progress - Completed Incurred Cost Years By Fiscal Year 11,101 10,000 8,636 8,000 6,000 4,000 4,088 2, FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Page 9 Incurred Cost - Looking to the Future DCAA has put in place the policies, training and infrastructure to effectively address the incurred cost backlog DCAA completed more than 11,000 incurred cost years in FY 2014 The Agency receives about 4,500 incurred cost submissions each year The Agency is currently completing about 2 years worth of incurred cost inventory every year Page 10

6 DCAA Small Business Outreach Instituted a Small Business Focal Point Implemented Small Business Outreach Program Seminars offered through various DoD Small Business Offices Designed to facilitate understanding of DCAA and compliance with regulations and contract terms Local DCAA audit office Supervisor or Branch Manager will attend and assist facilitators at these seminars NDIA/SBTC joint DCAA/DCMA Committee Improved Guidance and Audit Processes Focused Training for all Auditors on Small Business Audits Page 11 Available DCAA Seminars On DCAA webpage ( click on Help for Small Business Accounting System Requirements Contract Briefs Incurred Cost Submissions Monitoring Subcontracts Proposal Adequacy Provisional Billing Rates Public Vouchers Real-time Labor Evaluations Page 12

7 Checklists & Tools Available Audit Process Overview Information for Contractors Manual A helpful guide that provides an overview of the types of audits DCAA conducts and what you can expect in a DCAA audit Preaward Accounting System Checklist assesses whether the requirements for an adequate accounting system have been met. This checklist is used for contractors new to government contracting that have cost reimbursement contracts, or for contractors that are receiving progress payments based on cost DoD Contract Pricing Proposal Adequacy Checklist assesses the adequacy of proposal and supporting cost or pricing data. This checklist is used for assessing the adequacy of a contract price proposal in accordance with the FAR Incurred Cost Submission Adequacy Checklist assesses the adequacy of final direct and indirect incurred costs to ensure compliance with the contractual requirements under FAR Incurred Cost Electronically (ICE) Model The ICE model (the electronic version of "Model Incurred Cost Proposal") assists Contractors in preparing adequate Incurred Cost Proposals Page 13 Subcontract Award Responsibilities The prime contractor has a responsibility to provide proper management of its subcontracts The prime contractor must ensure and support that the: price proposed by the subcontractor is fair and reasonable; subcontractor is a reputable source; and subcontractor provides a value-added enhancement to the product or contract Page 14

8 Price Reasonableness In establishing price reasonableness of subcontracts (FAR ), the prime contractor needs to conduct appropriate cost or price analyses to establish the reasonableness of proposed prices; include the results with the prime price proposal; and when required submit subcontractor certified cost or pricing data to the Government as part of its own certified cost or pricing data Page 15 Competition FAR Part 6.1 establishes a clear preference for promoting and providing for full and open competition including underlying subcontracts Using competitive procedures to the fullest extent possible in awarding subcontracts will control costs and obtain the best possible pricing in meeting Government requirements The prime contractor should have detailed procedures for competing requirements to ensure it maintains the integrity of the competitive bid process Page 16

9 Support for Commercial Determinations and Prices Prime contractors need to adequately document and support both the commercial determination and price reasonableness The prime contractor needs to obtain sufficient information (market sales data or if necessary cost data) to justify its decisions If there are any difficulties obtaining necessary data from the subcontractor, the prime contractor should immediately notify the contracting officer Page 17 Subcontract Administration Responsibilities After subcontract award, prime contractors still maintain responsibility for all necessary subcontract management actions through completion of subcontract performance monitoring, auditing, administering, and closing of each subcontract In order to perform these responsibilities, prime contractors shall establish and maintain effective subcontract management policies and procedures (FAR and DFARS ) Page 18

10 Common Procedures Review adequacy of subcontractor incurred cost proposals and supporting data and billings prior to making payment Make payments to the subcontractor determined to be allowable in accordance with FAR 31.2 and contract terms Ensure the subcontractor submits timely final invoice or voucher and indirect rate adjustments to reflect the claimed year-end indirect cost rates The prime contract final invoice or voucher shall include settled subcontract amounts and rates. FAR (a)(9) provides that the Government cannot closeout a prime contract until all of the subcontracts are settled. Page 19 Business Systems Both prime contractors and subcontractors have the responsibility for establishing and maintaining acceptable business systems for Government contracting It is incumbent upon prime contractors to ensure their subcontractors maintain acceptable business systems by performing procedures to determine if the subcontractor s business systems (e.g., estimating, accounting, and purchasing systems) are adequate before award; and monitoring the adequacy of the subcontractor s systems during subcontract performance The DFARS clauses describe the criteria for acceptable business systems Page 20

11 Common Issues Areas Where DCAA Questions Costs Material Costs Issues Proposed costs are inflated over purchase history Contractors do not consider cash or quantity discounts Contractors do not determine if proposed materials are in surplus inventory Contractors do not consider decrement on material costs that are based on quotes Subcontracts Prime contractors are not performing the required cost and price analysis of their subcontractors Commercial Items DCAA is challenging Contractors on their proposed commercial items. Proposed commercial items often do not meet the FAR definition Escalation Contractors propose escalation on both material and labor costs. This can be a significant cost for Army procurements because of the long performance periods Contractors propose escalation that are not supported by historical rates or are based on estimates DCAA uses commodity and labor specific escalation factors for out years Page 21 Contractor Support Adequate contractor proposal submissions and assertions facilitate effective and timely audits Effective walk-throughs of contractor assertions Identification of internal reviews performed by the contractor that can be leveraged by DCAA to reduce the resource impact on the contractor Adequate supporting data in a timely manner and timely access to key contractor personnel responsible for the data or activity Real-time DCAA access to contractor systems Page 22

12 Defense Contract Audit Agency Additional information on DCAA and Points of Contact available at Page 23

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