New Memorandum Lays Groundwork for More Powerful DCAA

To get the New Year off to a frustrating start for government contractors, Shay Assad, Director of the Defense Procurement and Acquisition Policy (DPAP), released a memorandum called:

“Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending; ‘Align Defense Contract Management Agency (DCMA) and Defense Contract Audit Agency (DCAA) Processes to Ensure Work is Complementary”

Just reading the name of this memorandum was painful enough but then it went on to discuss actions, which have been implemented for a better working overlap between the DCMA and DCAA. These were to be in compliance with an earlier memorandum from September 2010.

Amongst other matters, the memorandum discusses that DCAA field audits will only be carried out for cost-type proposals of $100million+ and fixed-price proposals of $10million+. Additionally, DCAA will withdraw from financial capability reviews with the exception of reviews that are in the processes of Preaward Audit Surveys.
While this is generally good news for government contractors, the memorandum did mention one troubling aspect in regards to the corporate administrative contracting officers (CACO) and Forward Pricing Rate Recommendations (FPRR) and Forward Pricing Rate Agreements (FPRA).

The troubling part of the memorandum is that it states that, after DCAA does an audit of a government contractor’s rates, those rates will be adopted by DCMA. The rates will then become the recommended rates for FPRR. However, this clearly goes against the judicial decision that the final forward pricing rates are to be determined by the contracting officer.

FAR states that role of DCAA is just one of advising and the contracting officer will be in charge of deciding to what extent the DCAA recommendations will be carried out. Further, the contracting officer is the only and final authority for administering the contracts and to “make related determinations and findings.”

Clearly, the memorandum goes against FAR. Even though the purpose of the memorandum was to define the relationship of DCAA and DCMA, it instead worked to give DCAA more power while stripping the contracting officer of the right to, “wide latitude to exercise business judgment” as stated under FAR.

Now, the final contracting rates set by DCAA will simply be issued from the contracting officer. The contractor will not be able to contradict these rates set by DCAA and show why they are not relevant or reasonable unless the contractor objects to the rates by a Contract Disputes Act claim.

That means that government contractors are going to lose the ability to get back the money spent from fixed price DCAA contracts because the rates will be all predetermined.

While the memorandum may have seemed like good news to us at first, government contractors should prepare for a tough year, which could get even worse in the next several years. DCAA is gaining increasing influence and, as it does, the authority of DCMA and contracting officers is diminishing. It will probably take a court appeal before this trend of DCAA power increasing ends.