| Small R&D
Company Tackles a New Government Contract
Scenario
A biomedical company had successfully completed
a Phase One Small Business Innovation Research (SBIR) project for
the U.S. Department of Health & Human Services (DHHS). The SBIR
Program is a highly competitive three-phase award system that provides
qualified small business concerns with opportunities to propose
innovative ideas that meet the specific R&D needs of the federal
government.
The Phase One federal contract was awarded on
a firm fixed price basis in the amount of $100K. The company had
been in business for several years with annual revenues of approximately
$2M. It had recently submitted a proposal for a Phase Two SBIR contract
in the amount of $750K. The contract was to be awarded on a cost
plus fixed fee type contract. Prior to award, the company was contacted
by the Defense Contract Audit Agency (DCAA) for a pre-award audit
in order to determine if the company’s accounting system was
adequate to meet the requirements for award of a cost type contract.
The company did not fare well in the audit, and by the time CB&H
was contacted, the company had just received a draft of the audit
report from DCAA that indicated that the company’s accounting
system was not compliant with Part 31 of the Federal Acquisition
Regulation and was not adequate for accumulating costs under cost
reimbursable contracts.
CB&H Action Steps
CB&H prefers to work with a company prior
to the submission of a proposal in order to assure the best chance
for success. However, it is not uncommon for our firm to be engaged
as a result of an audit, as was the case here – we were engaged
to help the company overcome its audit problems, with the goal of
securing the Phase Two contract. Our first step was to review the
proposal and the draft DCAA audit report and to receive a file backup
of the company’s QuickBooks Pro accounting system. Our firm
has a number of QuickBooks Pro advisors who are also very knowledgeable
of the accounting system requirements for cost type contracts. We
drafted a response to DCAA, which included a list of steps the company
planned to initiate to correct the deficiencies and also included
a request that DCAA revisit the company in two weeks to conduct
a follow-up audit. We revised the accounting system to more accurately
segregate direct and indirect costs, as well as unallowable expenses.
We enhanced the job cost module, implemented the timekeeping component
of QuickBooks and developed a number of standard reports for monitoring
costs. We then provided on-site training on the proper accounting
policies and procedures necessary for cost type contracts. Our consultant
also worked with client employees on how to work with government
auditors and reviewed contractor requirements in a pre-award survey.
When the DCAA performed the follow-up audit, our consultant was
on-site as a liaison to the auditor and explained our role in the
process. The company was able to satisfy the auditor and received
approval from DCAA that its system was acceptable for accumulating
costs on government cost type contracts.
Results
Through the efforts of CB&H Government Contracting
group, the client went from potentially losing a $750K contract
to securing the contract and receiving an acceptable audit report
from the DCAA. The company now better understands the requirements
for bidding on cost type contracts and the importance of its proposals
being consistent with its accounting system. The company was able
to modify some of its accounting processes and procedures to comply
with the requirements for certain federal contracts while not incurring
any substantial expense with a new system or a system that is overly
complicated for a small business. In addition, the company is now
much better prepared to propose on additional government contracts.
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