Challenges of Contracting with the Federal Government November 19 th, 2015 The Fundamentals of Government Contracting Webinar Series 1
Your Presenters David King Dixon Hughes Goodman, LLP 703.970.0433 David.King@dhgllp.com Mike Mardesich Dixon Hughes Goodman, LLP 703.970.0508 Mike.Mardesich@dhgllp.com 2
Fundamentals of Government Contracting at a Glance Challenges of Contracting with the Federal Government (November 2015) Contract Types and Associated Risks (December 2015) Year-End Closing (January 2016) An Introduction to the Incurred Cost Submission Part I: Who, What, Where, When, Why, and How? (February 2016) Part II: Preparation and Adequacy Review (March 2016) Accounting Systems and Setups (April 2016) 3
Fundamentals of Government Contracting at a Glance Accounting System Adequacy 101 (May 2016) The Composition of Total Cost (June 2016) Making Way for 2017 Budgeting and Provisional Rates (July 2016) Procurement Systems: DFARS Business Systems Rule and Criteria (August 2016) Exploring the Gray Area of Unallowable Costs (September 2016) Policy and Procedures Manual: What s In It and Why Do You Need One? (October 2016) 4
The Market U.S. government spent over $1 trillion on goods and services in FY 2014 Buys goods and services from Commercial (for profit) companies Not-for-profits Universities State and Local Governments 5
Starting Point Commercial Marketplace vs. Government Unique Brooms to Bombs Price vs. Cost-Based Procurements 6
Procurement Methods Price-Based Procurement Methods Cost-Based Less burdensome rules and government oversight Commercial Items Competitive Bids Federal Supply Schedules Sealed Bids More regulatory coverage and government oversight Sole Source Change Orders Exceptions 7
Procurement Methods Commercial Items Government buying commercial items like any consumer Sold, leased, or licensed to the general public, or Been offered for sale, lease or license to the general public Competitive Bids Adequate number of responsible offerors submit bids Offers responsive to expressed requirements Contract to be awarded to lowest bidder Beware change orders 8
Procurement Methods Federal Supply Schedules (Examples: GSA Multiple Awards, GWACs, IDIQs) Tables of prices for various items/services] Provides automatic competition Government demands most favored customer GSA maintaining post-award audit rights Sealed Bids (Competition) May be used when Award based on price alone Not necessary to conduct discussions More than one bidder 9
Procurement Methods Sole Source and Change Orders No commercial marketplace Reliance on cost estimates/data Reliance on costs has led to development or cost-based regulations Federal Acquisition Regulation (FAR) Part 15, Contracting by Negotiations Federal Acquisition Regulation (FAR) Part 31, Cost Principles and Procedures Cost Accounting Standards (CAS) Indirect allocations 10
The Fundamentals of Government Contracting Webinar Series The Regulations 11
Cost Requirements - FAR Part 15 Compliance Obligations Prescribes format and methodology for proposing costs Requires submission of Cost or Pricing Data May require Certification (Accurate, Complete, and Current) in accordance with the Truth-in- Negotiations Act (TINA) Penalties Cost Disallowance TINA Violations/Defective Pricing (Price Adjustment) False Statement/False Claim 12
Cost Principles FAR Part 31 Compliance Obligations Criteria for allocating costs Defines allowability of costs Requires exclusion of unallowable costs Penalties Disallowance of costs Penalties for unallowable costs Interest penalty 13
Cost Principles FAR Part 31 Cont. Cost Principles Commercial Federal Acquisition Regulations (FAR) 31.2 and Agency Supplements (DFARS) Not-for-Profits Organizations FAR 31.7 and OMB Circular A-122 Educational Institutions FAR 31.2 and OMB Circular A-21 State and Local Governments FAR 31.6 and OMB Circular A-87 2 C.F.R. Parts 220, 225, 215, and 230 Super Circular Supersedes and streamlines the requirements of the above OMB Circulars 14
Cost Accounting Standards - FAR Part 30 & CAS Compliance Obligations Criteria for the assignment and allocation of costs to government contracts Disclosure of accounting practices Notification of changes to accounting practices Requires consistent application Penalties Contract price adjustment No increased cost to government if practices change Interest penalties Statute of limitations 15
CAS Standards 401 Consistency in estimating, accumulating, and reporting costs 402 Consistency in allocating costs incurred for the same purpose 403 Allocation of home office expenses to segments 404 Capitalization of tangible assets 405 Accounting for unallowable costs 406 Cost accounting periods 407 Use of standard costs for direct material and direct labor 408 Compensated personal absence 409 Depreciation of tangible capital assets 410 Allocation of business unit G&A costs 16
CAS Standards Cont. 411 Acquisition costs of material 412 Composition and measurement of pension costs 413 Adjustment and allocation of pension costs 414 Cost of money as an element of the cost of facilities capital 415 Deferred compensation 416 Accounting for insurance costs 417 Cost of money as an element of capital assets under construction 418 Allocation of direct and indirect costs 420 Accounting for IR&D and B&P costs 17
Cost Representation Government has responsibility to protect taxpayer dollars from fraud, waste and abuse Contract Clauses Truth in Negotiations Act (TINA) False Claims Act Allowable Cost and Payment Limitation of Cost/Funding Penalties for Unallowable Costs CAS Clauses Monetary and CRIMINAL penalties 18
The Fundamentals of Government Contracting Webinar Series The Players 19
Contract Administration & Oversight Contracting Officers Procurement Contracting Officer (PCO) Administrative Contracting Officer (ACO) Termination Contracting Officer (TCO) Civilian Agencies often the same individual Department of Defense PCO is with the Agency or Service Branch ACO is Defense Contract Management Agency (DCMA) 20
Contract Audit Oversight Advisory to CO Audit and Records Clause Allows Government access to Books, documents, accounting practices and other data Regardless of Form Defense Contract Audit Agency (DCAA) Civilian Agency audit function Agency Inspector General (IG) oversight 21
Claims and Disputes Generally triggered by CO final decision Bid Protests CAS Noncompliance Disputes Request for Equitable Adjustment Government Accountability Organization (GAO) Board of Contract Appeals (BCA) Court of Federal Claims (CoFC) 22
Government Investigators Investigative organizations (look for fraud, waste and abuse) Agency Criminal Investigation Units FBI Agency IG Offices 23
The Fundamentals of Government Contracting Webinar Series Challenges and Risks 24
Proposal Challenges Sometimes confusing, yet overly detailed instructions Requirements for technical and cost/price data (current, accurate and complete) Inflexible deadlines Government audit of proposal Post-award audit for compliance Failure results in contract price adjustment and interest 25
Contract Performance Challenges Structured reporting requirements to the government Requirement to track costs separately Payment and finance issues Provisional Billing Rates Fee withhold (CPFF and T&M) Loss Ratio (FFP) Audit surveillance throughout performance Floor checks Audit of systems Review of budgets 26
Contract Completion Challenges Government must accept deliverables before final payment is approved Final audit of cost-reimbursement and T&M contracts Incurred Cost Submission Negotiation of Final Costs Final voucher 27
Bottom Line Risks Cost Disallowance Rate adjustment Interest Penalties Fraud Receivables outstanding Defective Pricing Contract price adjustment Interest Revenue overstated 28
Bottom Line Risks Cont. Cost Accounting Standards Noncompliance No statue of limitations Results in contract price adjustment Revenue overstated Changes in Accounting Practice CAS-covered contracts only No net increased cost to government Often subject of dispute Potential effect on receivables/revenue 29
Bottom Line Risks Cont. Contract Termination Converts fixed-price to cost-reimbursement Loss Ratio will affect revenue recognition Unsettled changes Cost System Disapproval Delay of contract award Delay in billing cycle due to increased oversight Need for reserves 30
Bottom Line Risks Cont. Fraud Allegations Civil and Criminal Penalties Risk of Debarment Costs of supporting investigation are not allowable Suspension or Debarment Inability to submit bid on future solicitations Inability to propose as subcontractor as well Period determined by government 31
How to Mitigate Risk READ THE RFP/CONTRACT!!! Ensure your accounting system is set up properly Understand the regulatory requirements you signed up for (ICS Reporting) When you re not sure, seek help sooner than later Communication, Communication, Communication 32
Questions? 33
The Fundamentals of Government Contracting Webinar Series Join us next month for Contract Type and Associated Risks on Thursday, December 17 th 34