| DCAA Form 1
Action Avoided
Scenario
A mid-size division of a very large government
contractor became embroiled in a lengthy disagreement with the Defense
Contract Audit Agency (DCAA) when DCAA refused to approve the firm’s
final indirect expense rates. The DCAA auditor took exception to
the contractor’s indirect cost structure, which included numerous
overhead pools and several G&A rates. Although the pool structure
was consistent with the accounting practices previously described
in the contractor’s Cost Accounting Standards Disclosure Statement,
the auditors maintained that there were simply “too many rates.”
The DCAA staff auditor also determined that certain indirect expenses
were unallowable for government contracting because they were not
reasonable, although they did not violate any of the specific cost
principles under the Federal Acquisition Regulation.
The situation with the auditor had deteriorated
to the point that the two parties were no longer communicating;
the draft audit report was released with inflammatory language and
the auditor threatened to issue a DCAA Form 1 as a final resolution
of the contested items. The Form 1 contemplated by DCAA would have
had grave implications on the contractor’s prospects for winning
several new contracts.
CB&H Action Steps
CB&H consultants met with the contractor’s
management team and agreed on a course of action to defuse the situation
and move the parties toward a fair resolution. We reviewed the contractor’s
accounting system, Disclosure Statement and final indirect rate
submission. Working with the contractor’s staff, we prepared
detailed, factual responses to each assertion in the draft audit
report. CB&H served as the representative of the contractor
and orchestrated a meeting with the DCAA auditor, audit supervisor
and acting branch manager to review the draft report, evaluate new
supporting documents, reconsider the contractor’s positions
and negotiate final rates.
Results
At the conclusion of the review process, DCAA
approved the final rates with only minor concessions by the contractor.
The indirect costs structure was left intact and the audit report
was suitably revised. No Form 1 was issued. The contractor used
the final indirect rates for the year to prepare adjustment invoices
so it could collect unbilled accounts receivable and fee retained
on completed contracts. There was also a noticeable improvement
in the relationship with DCAA. The avoidance of the Form 1 left
the firm able to pursue new contracts without accounting issues
or other unsupported assertions impairing the credibility of the
company’s bids.
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