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CB&H Assists Contractor in DCAA Audit and Price Redetermination Proposal

Scenario

Four electrical membership cooperatives teamed together to form a rural utility services company, and bid on a 50-year contract for the privatization of routine operations and maintenance of a utility system on a government installation. The client was awarded the contract on a fixed-price redeterminable basis with prospective pricing every two years. Approximately two years after the contract start date, DCAA contacted the client to begin an audit of the client’s books and records for the purpose of determining the price for the first price redetermination period. The client’s initial reaction was that the government did not have the right to audit its books and records, and was unsure how to resolve this issue.

CB&H Action Steps

CB&H government contracting specialists reviewed the contract agreement and noted several inconsistencies that needed to be addressed in order to determine if the government had the right to audit the client’s books and records. Once it was acknowledged that the client would proceed with the audit, we had to prepare and defend the redetermination proposal. DCAA’s auditor was not knowledgeable in utility system accounting, so CB&H walked the auditor through utility system accounting and some cost allowability uniqueness issues.

In utility system accounting, interest expense is an allowable cost per a deviation that was issued in 2004 by the Director, Defense Procurement and Acquisition Policy. The auditor was not aware of this deviation from the FAR, and once we provided documentation to support this deviation, we were able to successfully defend these costs as allowable costs. After the completion of the audit, the auditor questioned whether the contract was CAS covered. Our research indicated that, in 2004, the Director, Defense Procurement and Acquisition Policy issued a waiver to CAS for certain contract types, including fixed price redeterminable electric utility privatization contracts. Once again, we were able to provide documentation to the auditor that demonstrated this waiver applied to our client, and the auditor concurred our client’s contract was not CAS-covered. Finally, the auditor was not aware of how overhead allocations worked in utility system accounting. Again we were given the opportunity to explain how overhead allocations worked, and demonstrate that our client was in fact accounting for overhead on a reasonable basis.

Results

The results of the audit were successful, and the client was awarded a task order for the next two-year redetermination period. The client has also gained control over and confidence in its accounting system and financial reporting capabilities. Now, the client has the confidence and ability to submit proposals for similar type privatization contracts, and is continuing to perform under its existing contract.