Government Contract Services

Transcription

1 August 2013 Government Contract Services Summer 2013: Uncertain times for the Government and you

2 Table of contents 3 DCAA report to Congress on 2012 activities 5 DCAA access to internal audit reports 6 Sequestration: defense contractors continue to face ambiguity 8 Merger and acquisition risks and considerations for today s government contractors 10 Recent decisions 12 Audit update 14 About EY Government Contract Services 14 Contact details for our leaders As the largest buyer of goods and services in the world, the US Government presents companies with significant business opportunities. But success in selling your goods and services in the federal marketplace will depend on the company s ability to comply with the Government s procurement rules and regulations. These touch all aspects of a business relationship, from proposal submission, contract award and performance to contract close-out and final payment. These rules and regulations affect financial and management systems, particularly cost accounting, product pricing, labor recording, material purchasing, inventory management, customer billing and contract administration. In order to help companies understand these challenges and to keep abreast of emerging trends in this dynamic environment, we EY s Government Contract Services are sharing the enclosed Government Contracts Newsletter with you. In this issue, we summarize highlights from the annual report by the DCAA Defense Contract Audit Agency (DCAA) to Congress and provide insights on the agency s performance against the prior year. We discuss implications of DCAA s increased focus on access to contractor records and internal audit reports. As the Government s fiscal year closes September 30, sequestration continues to be top of mind. Given the current budget reductions associated with sequestration and efforts to mine costs out of existing contracts, government contractors are considering merger and acquisition opportunities yet should be aware of the due diligence activities unique to government contractors that can help avoid costly mistakes. 2 Government Contract Services newsletter August 2013

3 DCAA report to Congress on 2012 activities As required by US Code, 1 the DCAA issued its annual report on FY2012 activities to Congress on March 29, The 2012 report provides valuable insights to contractors on DCAA hot button issues, staffing, and agency strategy and performance especially as compared against FY2011 metrics below. DCAA s current structure and staffing include 5,181 employees, of which 4,492 areclassified as auditors (25% of whomare CPAs), located in more than 300field offices in six regions of the US. Staffing in 2012 reflects an increase of approximately 300 auditors from 2011, which is in line with DCAA s goal of 5,600 employees by However, Agency Director Patrick Fitzgerald raised his concern that the FY13 hiring freeze and budget constraints may impact future plans. Snapshot of audit performance in against Number and type of audit reports issued 2012 audit reports 2011 audit reports 26.7% 17.6% 26.9% 28.8% Forward pricing proposal 1,811 Special audits 1,937 Incurred costs 1,795 Other 1,173 Total 6, % 25.5% 34.6% 35.2% Forward pricing proposal 2,599 Special audits 2,555 Incurred costs 349 Other 1,887 Total 7,390 While the number of reports issued decreased overall from 2011 to 2012, the dollars audited and questioned increased and 2011 audited vs. questioned dollars Amount (in billions) $200 $150 $100 $50 $ Audited $ The average length of time to complete an audit has remained relatively constant, except for incurred cost audits, which took an additional 219 days to complete in 2012 vs (1,184 days vs. 965 days, respectively). Average length of time to complete an audit Questioned $ The incurred cost submission (ICS) backlog has continued to grow with an increase of 13% in the number of submissions deemed adequate for audit since The dollar value of these backlog submissions has increased by approximately 30% since the prior year. Incurred cost audit backlog Number incurred cost submissions 20,000 15,000 10,000 5,000 0 Value $333b 2012 Value $337b Adequate Value $254b 2011 Not received or reviewed Value $320b In addition, DCAA reported net savings of $4.2 billion and a return on investment of $6.70 per dollar of DCAA budget, compared with $3.5 billion and $5.80 per dollar, respectively, in the prior year. Forward pricing Audit type Special audits Incurred costs Other ,000 1,200 1,400 Number of days U.S.C. 2313a, Defense Contract Audit Agency: annual report. 2 Report to Congress on FY2012 Activities at the Defense Contract Audit Agency, March 31, Report to Congress on FY2011 Activities at the Defense Contract Audit Agency, March 30, Government Contract Services newsletter August

4 DCAA report to Congress on 2012 activities (continued) Deficiencies in the acquisition process, recommended changes and ongoing DCAA challenges DCAA proposed and implemented checklists to improve proposal adequacy and assist DCAA auditors in the evaluation of forward pricing rate proposals. The checklist for proposal adequacy codifies common expectations for auditors, contracting officials, and contractors. 4 While contractors will be required to complete the proposed Forward Pricing Rate Proposal checklist upon issuance of the rule, DCAA has already initiated use of this checklist by its staff. DCAA/DoD identified challenges: Commercial pricing: DCAA states that contractors do not provide adequate documentation to support proposed commercial or market-based prices in accordance with the definition of commercial items in FAR 2.101, Definitions. The FY13 Defense Authorization Act requires training on price reasonableness that DCAA believes will alleviate concerns at the prime contract level. However, to address concerns at the subcontract level, DCAA plans to engage the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics and recommend that its training emphasize reducing the risk of excessive commercial prices at the subcontract level. DCAA initiatives Consolidated audits at major contractors: In FY2011, DCAA consolidated the audit management for Raytheon.6 DCAA states that consolidating the audit management resulted in reduced redundancies in contractor information requests, more comprehensive understanding of contractor business segments, and facilitated easier access to contractor records and timelier reporting of audit results. In FY2012, DCAA expanded this consolidated, coordinated, nationwide audit management concept. In FY2012, DCAA began applying this model to Northrop Grumman, which has more than $20 billion in annual government sales and where DCAA anticipates similar results. 6 Cost Recovery Initiative (CRI): DCAA launched a joint effort with the Defense Contract Management Agency (DCMA) to resolve numerous outstanding audit report actions, the majority related to long-open Cost Accounting Standards noncompliance allegations. DCAA and DCMA resolved nearly 500 of the 700 audits originally identified as requiring resolution and, as a result, contracting officers have requested more than $600 million be returned to the U.S. Treasury. Lack of express authority to review or subpoena data other than certified cost or pricing data: FAR , Requiring Data Other Than Cost or Pricing Data, permits the Government to obtain data other than certified cost or pricing data to assist in determining price reasonableness of a contractor s offer. Per DCAA s report, Contractors have been reluctant to provide this information. 5 While the FAR allows contracting officers to request this data, there is no authority to compel contractors to produce it. DCAA submitted a legislative proposal for FY2013 that would expand the DCAA subpoena authority to data other than certified cost or pricing data. That proposal was deferred, but DCAA plans to resubmit in FY Report to Congress on FY2012 Activities at the Defense Contract Audit Agency, March 31, Memorandum to Regional Directors 12-PSP-024(R) Revised Audit Program for Forward Pricing Rate Proposal Audits and Issuance of an Adequacy Checklist for Forward Pricing Rate Proposals, September 29, Report to Congress on FY2012 Activities at the Defense Contract Audit Agency, March 31, Government Contract Services newsletter August 2013

5 DCAA access to internal audit reports DCAA access to internal audit reports under 2013 National Defense Authorization Act, Section 832 On January 2, 2013, President Obama signed the FY2013 National Defense Authorization Act (NDAA). Section 832 of the Act provides the DCAA with statutory authority to access contractor internal audit reports while also limiting the DCAA s access to those reports related to in-process audits. Although not explicitly highlighted, Section 832 provides the DCAA with significant remedies and even greater access to internal audit reports than previously established in federal case law. The use of subpoena authority to overrule access denials could have wide-ranging impacts, such as an increase in the number of DCAA adverse or qualified opinions and increased questioned costs in price proposals and progress payments, and it could lead DCAA to identify significant deficiencies resulting in contract withholds. However, contractors with a robust corrective action program in place and a strong internal audit function may encounter less of an impact. Some of the key provisions within Section 832 require that DCAA: Document that its requests for access to internal audit reports are necessary to complete required evaluations of contractor business systems Keep a record of contractor responses to requests for access to internal audit reports, including the contractor s rationale if access to reports is denied Implement and adhere to appropriate safeguards and protections to ensure that the DCAA does not use internal audit reports for purposes other than assessing risk and evaluating/testing efficacy of contractor internal controls and reliability of associated business systems Limit the consideration of a contractor s internal audit reports as only a factor in determining whether a contractor s business systems are sound On April 23, 2013, DCAA issued Memorandum for Regional Directors (MRD) 13-PPS-007(R) to provide updated guidance on the requirements for obtaining access to contractor internal audit reports. As a result of DCAA s latest guidance and to comply with the requirements outlined in Section 832, the following actions have been taken by DCAA: Formal training in process at each Field Audit Office (FAO) Updates to Contract Audit Manual (CAM) 4-202, Access to Contractor Internal and External Audits Establish a central point of contact to obtain and monitor access to and use of internal audits at Contract Audit Coordinator (CAC) offices and FAOs Government Contract Services newsletter August

6 Sequestration Defense contractors continue to face ambiguity in light of the NDAA 2014 budget proposal With the balance of the Government s 2013 budget running its course in less than two months, the Government s energies have now transferred to the National Defense Authorization Act (NDAA) 2014 budgets. Because of the manner in which it addresses sequestration efforts it can be especially challenging for large defense contractors to interpret the impacts on their programs. While there has been much talk about the sequestration, little has been said about its specific impact. This compounds the issue for contractors since they know cuts will come. Yet without knowing when, where and how, it is difficult to properly plan. Program management and finance personnel have been overburdened leading up to sequestration and little relief appears on the horizon as sequestration, begins in earnest. Contractors should maintain good communication channels with the relevant agencies to understand where the cuts are likely to come. Contractors should also be adept at adjusting their reduction plans and be prepared to offer innovative cost savings measures since the cutting process is likely to be fluid. The recent House passage of the National Defense Authorization Act for 2014 continues to address sequestration with vague and ambiguous statements that challenge defense contractors to understand the impacts. Such statements have been reflected by the Armed Services Committee s Mark Fact Sheet: the Chairman s proposal fully complies with the House Budget which funds our national defense at pre-sequester levels while complying with the overall sequester budget cap and The Chairman supports the House budget effort to offset defense Sequester through cuts in lesser priority programs. 7 Do contractors position themselves for pre sequestration or assume that when FY2014 commences on October 1 they will be greeted with substantially lower funding reductions on their programs? The concerns about sequestration s impact and, more specifically, on Operation and Maintenance (O&M) have been elevated by Chairman Durbin as evidenced in his statement to the Defense Senate Appropriations Committee: the military is experiencing higher wartime operating tempos and higher transportation costs than expected when the budget request was formulated more than a year ago. As a result of all these factors, the Department is now facing a shortfall of more than $30 billion in our operation and maintenance (O&M) budget for FY2013. To that end, we have cut back sharply on facilities maintenance, instituted a hiring freeze, cut overhead and all non-essential spending, reduced many other important but lower-priority programs, and worked to shift funds from investment to O&M accounts. 8 7 Armed Services Committee Chairman Buck McKeon, Fact Sheet: Highlights of the Chairman s Mark - H.R National Defense Authorization Act for Fiscal Year Secretary of Defense Chuck Hagel, Submitted Statement on the FY 2014 Budget Request for the Department of Defense Senate Appropriations Committee Defense Subcommittee, Tuesday, June 11, Government Contract Services newsletter August 2013

7 Separately this sentiment was also echoed by General Martin Dempsey, Chairman of the Joint Chiefs of Staff, through his statements: With $487 billion in planned reductions already reflected in the Department s FY2013 budget, sequestration s additional cuts jeopardize readiness not only this year, but also for many years to come. We cannot fail to resource the war we are still fighting. At the same time, we cannot compromise on readiness in the face of an uncertain and dangerous future. In addition, he stated, When budget uncertainty is combined with the mechanism and magnitude of sequestration, the consequences lead to a security gap vulnerability against future threats to our national security interests. 9 Yet upon closer examination, NDAA for FY2014 budgets suggests that there will be some relief in funding due to sequestration; however, contractors should not be surprised that program details and specifics are lacking. An example of this was highlighted in the Senate Committee on Armed Services markup of the NDAA for FY2014 that provided additional funding for O&M, with budgets vaguely labeled as problems caused by fiscal year 2013 sequestration that include $732.2 million in Army operation and maintenance (O&M), $571.9 million in Air Force O&M, $448.5 million in Navy O&M, and $56.0 million in Marine Corps O&M. 10 However, little information is available beyond the OMB s initial guidance, identified below, of how sequestration will be executed, leaving contractors in a quagmire of how to position themselves for FY2014 budgets and further sequestration reductions. Planning efforts should be done with sufficient detail and clarity to determine the specific actions that will be taken to operate under the lower level of budgetary resources required by sequestration. Agencies should identify any major contracts that they plan to cancel, re-scope or delay as well as any grants that they plan to cancel, delay, or for which they plan to change the payment amount. 12 Accordingly, contractors and recipients of federal funding need to stay abreast of the budget issues on their programs by doing the following: 1) Maintain regular communications with their agencies 2) Have a reduction plan in place 3) Be prepared to offer innovation cost reductions on their programs In contrast, in June 2013, nine months after the start of FY2013, the Office of the Under Secretary of Defense (Comptroller) released its Report on the Joint Committee Sequestration for FY2013, which contained details that could lend some insight to anxious defense contractors by program, project and activity. By way of example, there are two pages that enumerate Operation and Maintenance programs with budget values identified for the FY2013 Initial Base, visibility for the portion associated with Overseas Contingency Operations (OCO), and across-the-board (ATB) adjustments, including prior-year rescissions General Martin Dempsey, Chairman of the Joint Chiefs of Staff, before the Senate Appropriations Committee Defense FY14 Department of Defense Budget, June 11, Senate Armed Services Committee Completes Markup of National Defense Authorization Act for FY14, website of Chairman Carl Levin, June 14, Office of the Under Secretary of Defense (Comptroller), Department of Defense Report on the Joint Committee Sequestration for Fiscal Year 2013, June OMB M Agency Responsibilities for Implementation of Potential Joint Committee Sequestration, dated February 27, Government Contract Services newsletter August

8 M&A risks and considerations for today s government contractors In today s era of shrinking government funding, contractors in the acquisition mode are paying special attention to more than just financial performance (e.g., working capital, forecasts, quality of earnings, debt like items such as aged accounts payables). They are analyzing the quality of a target s portfolio of contracts and related performance, including financial exposure and governmental/regulatory audit experience. Given the current budget reductions associated with sequestration and efforts to mine costs out of existing contracts, government contracting due diligence activities now have a far greater effect on the outcome of the deal. Well- planned and properly executed diligence activities can help contractors to avoid potential costly mistakes. The determinations made by the buyer s team regarding performance, outstanding audit issues, ongoing audits and potential risks should be factored into negotiations of the potential purchase price and/or indemnity provisions included in the purchase agreement. One of the key outputs of the due diligence process is an evaluation of the quality of earnings. In today s environment, special care should be taken to confirm the completeness and accuracy of incrementally funded contracts, option years and other contracts more easily changed by the Government. In addition, the Government is looking more at its ability to rely on the business systems of a contractor. As such, due diligence activities should include evaluations of the target s ability to meet government-specified requirements and, if applicable, the capability and maturity of the target s processes in performing and managing firm fixed-price contracts the contract type of choice for the Government. Acquiring companies should identify risks associated with special contract clauses and provisions with which they will be required to comply. Most contracts require the contractor to notify the Government when it becomes aware of a potential change in ownership. Considering the secrecy involved in acquisition transactions, both the seller and buyer need to work with their respective internal and external legal representatives regarding the timing and nature of such disclosures. On the financial side, many contracts contain provisions limiting expenditures for overtime, travel, overhead rates and fees. When evaluating overhead rates, the buyer needs to consider the status of the target s annual incurred costs submissions and forward pricing rates. Another consideration when reviewing a CAS-covered target 13 is to ascertain whether its Department of Defense contracts contain the Defense Federal Acquisition Regulation Supplement (DFARS) business systems rule ( , Contractor Business Systems), the status of government audits of the six DFARS business systems, whether any significant deficiencies have been identified and any subsequent withholdings from billings. Buyers need to evaluate the effect an acquisition may have on the target s pension liabilities and expenses. Since the FAR specifies that pension expense is allowable if accounted for in accordance with the requirements provided in Cost Accounting Standards 412 and 413, even contractors who are not fully CAS-covered must accumulate costs in accordance with these Standards. Special provisions in CAS 413 apply to segment closings and termination of pension plans that should be considered as part of the acquisition, especially since many contractors have pension plans associated with joint ventures, single-contract entities, and other similar organizational structures that administer and/or perform government contracts. It should be noted that the cost of due diligence and financial restructuring activities associated with transacting the deal are unallowable pursuant to FAR Part 31. At the onset of the process, contractors should establish charge codes to capture internal and external costs, including legal, consulting and financing costs, to identify and segregate these costs for estimating, accumulating and reporting purposes (e.g., contract pricing, indirect rates, invoices). Issues to consider once the acquisition closes: Changes to cost accounting practices Prior to closing the deal, a target s CASB Disclosure Statement should provide some information for the buyer to identify, at a high level, the nature and potential magnitude of anticipated changes to cost accounting practices should the buyer decide to integrate the target into its existing operations and cost accounting practices. External restructuring DFARS identifies the requirements, including definitions of restructuring and external restructuring and articulates limitations on cost allowability. In addition to the allowability provisions in FAR Part 31 and DFARS 231, DoD contractors who expect to incur $2.5 million or more in restructuring costs over a three-year period following the acquisition are subject to additional disclosure and audit requirements. 8 Government Contract Services newsletter August 2013

9 A listing of some of the requirements related to the acquisition or sale of an entity is summarized in the chart below. Cost Principle FAR Part FAR Part FAR Part FAR Part FAR Part FAR Part FAR Part FAR Part FAR Part FAR Part FAR Part Title Compensation for personal services, e.g., severance, incentive compensation, early retirement Economic planning costs Gains and losses on disposition or impairment of depreciable property or other capital assets Idle facilities and idle capacity costs Manufacturing and production engineering costs Organization costs Plant reconversion costs Relocation costs Goodwill Asset valuations resulting from business combinations Novation and Change-of-Name Agreements The current environment offers opportunities for companies to rationalize their product and service offerings, to grow or replace market share, to enhance margins, and to focus resources and efforts consistent with their strategic plans. Taking advantage of opportunities to acquire synergistic additions to a company is often part of such plans. Companies considering the acquisition or sale of an entity need to understand and be prepared to comply with the Government s rules in this area, especially those dealing with the allocation and allowability of costs associated with activities performed to investigate, evaluate and transact these deals. 13 Contractor received a single Cost Accounting Standard (CAS)-covered contract award, including option amounts, of $50 million or more; or received $50 million or more in CAS-covered contract awards during the immediately preceding cost accounting period. Exceptions apply see 48 CFR (b). Government Contract Services newsletter August

10 Recent decisions Armed Services Board of Contract Appeals (ASBCA) Noteworthy decisions April 1, 2013, through June 21, 2013 Appeal of J.F. Taylor, Inc., April 22, 2013, Judge Shackleford This case deals with Equal Access to Justice Act (EAJA) fees J.F. Taylor, Inc. (J.F. Taylor) pursued after the ASBCA ruled in its favor in an earlier decision on executive compensation issues. Since it was shown that J.F. Taylor met the requirements to qualify for reimbursement of legal fees, the sole issue was whether the Government proved that it was substantially justified in its position in the appeals, in which case the legal fees would not be repaid. The ASBCA held that the Government s position was substantially justified for several reasons. First, the Government s position was supported by legal precedent. Second, the Government used the methodology in the Defense Contract Audit Agency (DCAA) Contract Audit Manual (DCAM) to evaluate the reasonableness of executive compensation. Third, the statistical evidence presented at the hearing was a new approach, and the Government defended itself by stating that it used its long-standing approach in executive compensation cases. Finally, the ASBCA observed that the Government prevailed on some amounts, further legitimizing the Government s position. As such, the Government was not ordered to repay J.F. Taylor s legal fees. Appeal of Raytheon Company, Space & Airborne Systems (Raytheon), April 22, 2013, Judge Grant In this case, the ASBCA ruled on whether the Government s claims exceeded the six-year statute of limitations period of the Contract Disputes Act (CDA), 41 U.S.C Federal Acquisition Regulation (FAR) , Cost Accounting Standards, requires that contractors revise Disclosure Statements when making changes to accounting practices, and FAR , Administration of Cost Accounting Standards, requires that they submit a general dollar magnitude (GDM) for changes. Raytheon made four changes to its Cost Accounting Standards Board (CASB) Disclosure Statement over the course of February 2004 to November 2004 and submitted GDMs for three out of the four changes. However, for the first revision, Raytheon did not identify the GDM. Raytheon advised that a GDM analysis would be submitted at a later date, which was subsequently provided to the Government in April The Government asserted a claim in July 2011 for increased costs and compound interest as each of the four analyses showed a decrease in cost to Firm Fixed Price (FFP) contracts and an increase to cost-type contracts. Because the Government did not make a claim until 2011, the ASBCA ruled that the CDA statute of limitations had been exceeded for three out of the four claims, but ruled in favor of the Government for the first revision, because it could not have known whether a cost impact existed in order to make a claim. Appeal of Raytheon Missile Systems Company (Raytheon), May 23, 2013, Judge Clarke Raytheon submitted a proposal for its Tomahawk Missiles program, which included an estimated price for JP-10 fuel. However, during performance of the contract, the cost of the fuel rose significantly, causing Raytheon to submit a claim for price adjustment. Raytheon based its claim on the fact that the Defense Fuel Support Point (DFSP), the sole provider of the fuel, failed to disclose that factors other than market conditions can affect the price, and that the company, therefore, had no way of adequately pricing its risk. The ASBCA held in favor of the Government, saying that Raytheon did not attempt to research how the DFSP set its prices or request an Economic Price Adjustment clause, rather relying only on price history. Full case decisions can be found here. 10 Government Contract Services newsletter August 2013

11 Government Contract Services newsletter August

12 Audit update Defense Contract Audit Agency (DCAA) The Defense Contract Audit Agency (DCAA) is charged with updating audit program guidance and policy to incorporate new statutory requirements and other guideline changes. Recent revisions are listed in the table below and identify updates to DCAA audit programs, Memorandum to Regional Directors and the DCAA Contract Audit Manual (DCAM). Reference DCAA.mil for full text and explanation of the updates. Guidance and revisions April 1, 2013, through June 30, 2013 DCAA reference DCAM reference Revision/new document description Date Audit programs Activity Code Not applicable Audit Program for Incurred Costs Post Year End Audit Version 1.6 4/2013 Activity Code Not applicable EVMS, System Validation or Surveillance Version 1.7 4/2013 Activity Code Not applicable Audit Program for CAS Impact Proposal Evaluations Version /2013 Activity Code Not applicable Audit Program for Audit of Forward Pricing Rate Proposals Version 5.5 5/2013 Memorandum to Regional Directors (MRD) MRD 13-PAS-006(R) Audit Guidance on Handling Contractor Complaints Related to Auditor Independence 4/23/2013 MRD 13-PAS-009(R) Not applicable Audit Alert on Auditor Communications ( The Rules of Engagement ) 4/30/2013 MRD 13-PPS-005(R) Not applicable Audit Alert on the Agency Audit Review Process 4/9/2013 MRD 13-PPS-007(R) Updated Audit Guidance on Access to Contractor Internal Audit Reports 4/23/2013 MRD 13-PPS-010(R) 4-403, 4-409, Updated Audit Guidance for Documenting Differences of Opinion on Audit Issues 5/20/2013 DCAA Contract Audit Manual (DCAM) DCAM Chapter 4 General Audit Requirements 6/3/2013 DCAM Chapter 5 Audit of Policies, Procedures, and Internal Controls Relative to Accounting and Management Systems 6/3/2013 DCAM Chapter 6 Incurred Costs Audit Procedures 5/17/2013 DCAM Chapter 7 Selected Areas of Cost 5/20/2013 DCAM Chapter 9 Audit of Cost Estimates and Price Proposals 5/17/2013 DCAM Chapter 10 Preparation and Distribution of Audit Reports 6/3/2013 DCAM Chapter 14 Other Contract Audit Assignments 5/31/2013 DCAM Chapter 15 Other DCAA Functions 5/31/ Government Contract Services newsletter August 2013

13 Defense Contract Management Agency (DCMA) The Defense Contract Management Agency (DCMA) is charged with regularly updating its policies to incorporate new statutory requirements and other guideline changes. Recent revisions are included in the table below. Reference DCMA.mil for full text and explanation of the updates. Guidance/policies revised April 1, 2013, through June 30, 2013 Policy number Title Date 103 Contract Modifications 5/13/ Cost Accounting Standards (CAS) Administration 5/20/ Final Overhead Rates 4/12/ Grants, Agreements and Other Transactions 4/2/ Theater Business Clearance/Contract Administration Delegation 4/3/ Supplier Risk Management Through Standard Contract Surveillance 5/22/ Technical Support to Negotiations 4/3/ Critical Safety Items QA 4/10/ Packaging Management Program 5/2/ Inspection Stamping 5/2/ Standard Inspection Requirements 5/15/ Data Collection and Analysis 5/15/ Post Award Orientation Conference QA 4/26/ Overhaul, Maintenance, Modification, and Repair (OMMR) 5/22/ Industry Management Councils (IMC) 4/11/ Continuous Process Improvement/Lean Six Sigma (CPI/LSS) Program 4/2/ Organization Structure 5/15/ DCMA IT Acquisitions - Non-Programmed Acquisitions Valued at $3,000 or Below 4/2/2013 Government Contract Services newsletter August

14 About EY Government Contract Services For more than 20 years, GCS has helped companies gain access to this demanding marketplace and succeed whether through contracts, grants and/or cooperative agreements. Our team of experienced professionals have both the depth of knowledge and breadth of experience in applying the procurement rules and regulations of all government agencies, including the Department of Defense, Department of Homeland Security, General Services Administration, National Aeronautics and Space Administration, Department of Commerce, Department of Energy, Department of Health and Human Services, Department of Veterans Affairs, Environmental Protection Agency, the National Institutes of Health and many more. With GCS you get technical knowledge, practical experience and results across a wide range of government contracting functions and disciplines. Some of our key core competencies include: Proposal support Commercial item acquisition Contract pricing and proposal support Management systems Allowable costs Audits and investigations Cost Accounting Standards Claims and disputes Indirect cost rates Training Federal supply schedules Grants and cooperative agreements Termination proposals, both for Convenience and for Default DFARS Business Systems Assessments The strength of GCS is our team perspective and the synergies from our professionals, who have hands-on experience resolving the complex issues faced by government contractors today. With GCS on your team, you will have direct access to professionals who have prior public sector experience as procurement officials, contract auditors and private sector experience as business or financial executives. We have seen government contracting from both sides of the business relationship. That is why EY is the firm of choice of companies on complex matters, whether it be in assisting first time contractors or in providing expert witness testimony in litigation proceedings. Ernst & Young LLP contact details Robert Esernio, Jr. Partner National Leader, Government Contract Services robert.esernio@ey.com Todd LaMastres Partner todd.lamastres@ey.com Robert Malyska Partner robert.malyska@ey.com Deborah Nixon Partner deborah.nixon@ey.com Darl Rhoades Executive Director darl.rhoades@ey.com Mark Roberts Principal mark.roberts1@ey.com Frank Summers Executive Director frank.summersjr@ey.com Steven Tremblay Executive Director steven.tremblay@ey.com Government Contract Services newsletter August 2013

15

16 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US Ernst & Young LLP. All Rights Reserved. SCORE No. WW0300 BSC No ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com