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Government Contractors

Payment of Interim Vouchers under Cost Reimbursement Contracts

In the mid-1990’s, the Department of Defense (“DoD”) instituted a new policy of permitting contractors who met certain criteria to submit interim vouchers under cost reimbursement contracts directly to the Defense Finance and Accounting Service (DFAS) payment office. Under this policy, known as direct billing, the Defense Contract Audit Agency (“DCAA”) did not review these vouchers before they were sent to DFAS. By eliminating the DCAA review, contractors were able to be reimbursed much quicker for costs they had incurred in performing these contracts.

However, in 2012, DoD changed this policy and eliminated the direct billing procedure. As currently written, Defense Federal Acquisition Regulation Supplement (DFARS) 242.803 states that DCAA is responsible for:

Approving interim vouchers, that were selected using sampling methodologies for provisional payment and sending them to the disbursing office after a pre-payment review. Interim vouchers not selected for a pre-payment review will be considered to be provisionally approved and will be sent directly to the disbursing office.

Two points are significant concerning this language. First, interim vouchers are to be selected for review using sampling methodologies. Second, the review of interim vouchers must be done before the contractor can be paid. Further, although this DFARS section only references cost reimbursement contracts, DoD has stated through a separate memorandum that it applies to time and material/labor hour contracts as well. These requirements present some complications for contractors and obviously can slow the reimbursement process.

As a result of this change to the DFARS, DCAA has issued a series of Memoranda for Regional Directors (MRDs) providing guidance to auditors on how to accomplish this task. The most recent of these MRDs is 14-PPS-017(R), dated September 26, 2014. It is DCAA policy to sample vouchers based upon a risk assessment of the contractor, in regard to the contractor’s submission of proposals, to establish final indirect cost rates. If the contractor is considered low-risk, none of its vouchers will be selected for review. However, if the contractor is considered a high-risk contractor, a sampling plan will be developed for that contractor using the number of interim vouchers the contractor historically submits in a year.[1]

If a voucher is selected for review, MRD 14-PPS-017(R) provides an assessment tool to be used by auditors in reviewing vouchers. This tool is intended to provide consistency in the review of vouchers. Some points of note concerning the tool are the goal of reviewing vouchers within five days of receipt and a requirement to return the voucher to the contractor if it does not satisfy the elements of the assessment tool. In regard to the five day target, this seems to be an effort to comply with the terms of the Prompt Payment clause, Federal Acquisition Regulation (FAR) 52.232-25. FAR 52.232-25, Alt I covers application of the Prompt Payment Act to interim vouchers under cost reimbursement contracts. That clause requires the billing office, DCAA in this instance, to approve or disapprove vouchers within seven calendar days after receipt of a voucher. Under the clause, the standard for approval is whether the voucher complies with contract requirements. This standard for approval directly implicates the tests DCAA set forth in the assessment tool for determining whether a voucher is satisfactory.

FAR 52.216-7, which governs payments under cost reimbursement contracts, states that “The Contractor may submit to an authorized representative of the Contracting Officer, in such form and reasonable detail as the representative may require, an invoice or voucher supported by a statement of the claimed allowable cost for performing this contract.” Thus, this clause clearly gives DCAA, as the representative of the contracting officer, the authority to prescribe the form and level of detail to be included in a voucher. However, this does not necessarily mean that what DCAA requires in this regard meets the standard set forth in the Prompt Payment clause regarding requirements of the contract. While we have been unable to find any authoritative decision on this point, it is our opinion that the assessment tool that DCAA has prepared does not meet the test for acceptability under 52.232-25, Alt I.

There are two points from the assessment tool that frequently lead to controversy. The first point is withholding of fixed fee on cost-plus-fixed-fee contracts. FAR 52.216-8 requires the contracting officer to state in the contract schedule how fixed fee is to be withheld and the amount of withholding not to exceed 15 percent or $100,000, whichever is less. However, the assessment tool requires the contractor to withhold 15 percent of any fixed fee or $100,000.

The second point is the requirement that costs claimed must have been incurred during the period of performance of the contract. Sometimes, DCAA auditors get confused regarding this requirement and refuse to allow costs that were incurred during the period of performance, but billed sometime afterward. Similarly, they sometimes get confused concerning the ordering period under indefinite delivery contracts, and the performance period of task or delivery orders that were issued during the ordering period of the contract. However, the FAR permits the performance period of orders to extend beyond the ordering period. Thus, costs can be incurred properly under orders after the ordering period has expired.

As the foregoing discussion indicates, there are many issues involved with the new sampling requirement for interim vouchers. Our consultants have extensive experience dealing with DCAA on matters such as these. If you have any questions on topics covered in this blog, please do not hesitate to contact us.


[1] In regard to determining whether a contractor is low-risk or high-risk, see MRDs 12-PPD-023(R), dated September 6, 2012 and 13-PPD-021(R), dated October 29, 2013.

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