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CB&H Assists Contractor with Potentially Damaging Audit Report

Scenario

A well-established, mid-size government contractor routinely provided professional services to a number of government agencies and prime contractors under Time & Materials contracts or through a GSA Schedule contract. The firm joined with a very large government contractor on a key defense procurement that had intense competition. The mid-size contractor was proposed as a subcontractor on a Time & Materials basis under the prime contractor’s proposed cost reimbursement contract. The Defense Contract Audit Agency (DCAA) performed a pre-award audit of the prime contractor and its proposed subcontractors. The DCAA auditors performed a review of the mid-size contractor to determine if its accounting system was acceptable for government contracting. The DCAA released a draft audit report, and although the firm successfully performed millions of dollars of federal contracts each year, the auditors concluded that the accounting system was unacceptable for all government contracting. This conclusion was based on the finding that the job cost system could not track direct and indirect costs in sufficient detail to prepare invoices under a cost reimbursement contract. The contractor believed that if the audit report was released as drafted, that the company would be dropped from the proposed team, or possibly cause the team to lose the competition.

CB&H Action Steps

The government contracting specialists from CB&H reviewed the draft audit report, read the RFP and the subcontract proposal, met with contractor key personnel and determined the exact capabilities of the current accounting system. It was clear that the accounting system produced invoices that satisfy the requirements of Time & Materials contracts. Through a series of succeeding higher-level discussions with the DCAA auditor, the audit manager and finally the branch manager, CB&H convinced the DCAA to revise the audit report to specifically confirm that the system was acceptable for the proposed Time & Materials subcontract. Furthermore, CB&H was able to persuade the auditors to remove certain inflammatory and inaccurate statements. The revised audit report was released to the Contracting Officer.

Results

The mid-size contractor was retained on the prime contractor’s team, and the team advanced to the best and final stage of the procurement competition. The contractor was able to avoid any widespread confusion or problems that might have affected its existing contracts had the DCAA report been released as it was drafted. CB&H is working with the contractor on the design and implementation of upgrades to its cost accounting system so that the company will be fully compliant with the FAR requirements for cost reimbursement contracting.