Category Archives: Cost Corner

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Smash & Grab Redux – Congress Seems to Give DCAA Permission But Forgets to Give It Authority

By David Gallacher  Last month we wrote about a provision in the proposed 2013 National Defense Authorization Act (“NDAA”) that would have given the Defense Contract Audit Agency (“DCAA”) statutory authority to demand a company’s internal audit reports in order to audit the efficacy of a company’s internal business systems. Surprisingly, the authorization, as originally … Continue Reading

Smash & Grab – DCAA Poised to Gain Access to Contractor Internal Audit Reports

By David Gallacher  The Defense Contract Audit Agency (“DCAA”) has long sought access to contractors’ internal audit reports in connection with the routine audit of contractors’ business systems. Contractors have, in most cases, successfully resisted requests for such access on the grounds that DCAA has no statutory authority to request such documents. But that may … Continue Reading

Final Rule for IR&D Reports Fails to Address Most Serious Questions

By David S. Gallacher and Kerry O’Neill Last April, we wrote about proposed changes to Department of Defense ("DoD") reporting requirements for independent research and development ("IR&D"), raising concerns about how the proposed change would tie recoverability of IR&D costs to new reporting and disclosure requirements. Recently, Defense Federal Acquisition Regulation Supplement ("DFARS") 231.205-18(c) was … Continue Reading

Terrorism and Taxes – Proposed FAR Rule Imposes 2% Tax on Foreign Offers to Fund 9/11 Relief Fund

By David Gallacher and John Bonn On January 2, 2011, the President signed the James Zadroga 9/11 Health and Compensation Act of 2010, Pub. L. No. 111-347, which set up a relief fund for victims, first responders, and construction workers who were injured in the September 11 terrorist attacks in New York City. To pay … Continue Reading

Penalties for Expressly Unallowable Costs – The ASBCA Reconsiders and Ups the Ante for Contractors

By John W. Chierichella and Alexander W. Major Under FAR 42.709-1, penalties for expressly unallowable costs are to be waived when the expressly “unallowable costs under this proposal” are less than $10,000. Although there are other bases for the waiver of the penalties, those other bases are discretionary. The $10,000 exclusion is mandatory.… Continue Reading

The Times They Are A Changin’ – Independent Research and Development May Not Be So “Independent” Any More

By David S. Gallacher Those familiar with Government contracting know at least a little bit about the elusive and fickle regulatory requirements for Independent Research and Development (“IR&D” or “IRAD”) costs. IR&D is a means by which the U.S. Government supports a Contractor’s independent R&D efforts. By reimbursing a Contractor’s independent R&D costs, the Government long has … Continue Reading

Frankenstein’s Monster: Data Rights Changes Adopted In The National Defense Authorization Act For Fiscal Year 2011

By Louis D. Victorino A great deal of discussion has transpired regarding recent legislation that reportedly could alter significantly the established “follow-the-funds” test used for the allocation of intellectual property rights in data developed under a government contract. The legislation involved is a provision of the National Defense Authorization Act for Fiscal Year 2011 (the “Act”), signed … Continue Reading

Federal Circuit Affirms, Requires Showing of Benefit to the Government for Allocability of Development Costs

In Teknowledge Corp. v. U.S., Fed. Cir., No. 2009-5053, 11/03/09, the U.S. Court of Appeals for the Federal Circuit affirmed a decision by the Court of Federal Claims (COFC) that software development costs were not allocable to the Government because the Government did not receive a benefit from the costs.  Earlier this year we wrote … Continue Reading

FAR Councils Issue Interim Rule Limiting Excessive Pass-Through Charges

Based on their view that contractors who subcontract the majority of the work to subcontractors add little or no value, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (FAR Councils) issued an interim rule on October 14, 2009 that limits excessive pass-through charges by contractors and subcontractors.  See 74 Fed. Reg. 52,853 (October … Continue Reading

Reining in Use of “Of A Type” Commercial Service Contracting

The FAR Councils issued an interim rule, effective October 14, 2009, revising the circumstances under which services not offered and sold commercially can still qualify as commercial services. This is important for a couple of reasons, but probably most importantly, because commerciality can eliminate the requirement for the submission of cost or pricing data and can … Continue Reading

FAR Councils Issue Interim Rule Taking Aim at the Use of Award-Fee Contracts

On October 14, 2009, the Civilian Acquisition Council and the Defense Acquisition Regulation Council issued an interim rule that limits the use of award-fee contracts, modifies how a contractor earns an award fee, and prohibits the rollover of unearned award fees. The interim rule implements § 814 of the John Warner National Defense Authorization Act (NDAA) … Continue Reading

Working Like a Highway Road Crew — Government Finally Amends SF 1443 to Eliminate References to “Paid Cost Rule,” a Mere Seven Years After the Fact

In November 2002, the FAR Councils eliminated the so-called "paid cost" rule from the FAR, which had previously prevented federal prime contractors other than small businesses from recognizing incurred subcontractor costs for purposes of progress billing until "payment by cash, check, or other form of actual payment" had actually been made. See 67 Federal Register 70520 … Continue Reading

DCAA Form 1 Withholdings: What Gives?

As in — “What gives the DCAA the right to take the contractor’s money?”  DCAA would tell you that Form 1s are a long established mechanism for Governmental “self-help” in reclaiming funds from Government contractors.  And based on some recent audit guidance, it looks like Form 1 withholdings are fast becoming the “weapon of choice” … Continue Reading

Contract Debts

Effective October 17, 2008, the Cost FAR Councils will implement revisions to the policies and procedures for contract debts under FAR Subpart 32.6.  The changes cover all contract debts to the Government resulting from contractor’s compliance or failure to comply with contract terms, and irrespective of how, or by whom, the debt is identified.  The … Continue Reading

“Cost Corner” for September 2008

The Case of the Missing CAS Disclosure Statement NASA has terminated for convenience a $750 million cost plus award fee contract because the awardee failed to submit the required Cost Accounting Standards Disclosure Statement and because, as a result, NASA could not, and did not, evaluate the purportedly winning proposal against the missing Statement.  NASA’s … Continue Reading

“Cost Corner” for April 2008

Executive Compensation The Office of Federal Procurement Policy has established the FY 2008 compensation cap for the contractors’ five most highly compensated executives at $612,196.  Contractors are free to compensate executives above that amount, but pursuant to FAR 31.205-6(p) the cap sets the limit for how much of the compensation is reimbursable under government contracts. … Continue Reading

“Cost Corner” for March 2008

CAS Exemption for Overseas Contracts On February 13, the CAS Board announced that it will retain without change the CAS exemption for contracts executed and performed outside the US, its territories or possessions, found at 48 CFR 9903.201-(1)(b)(14).  The Board had issued a staff discussion paper in 2005, inviting comments on whether the exemption needed … Continue Reading

“Cost Corner” for February 2008

Interest Rate For the period starting January 1, 2008, and ending June 30, 2008, the US Treasury has set the interest rate used to calculate interest due on claims under the Contract Disputes Act and the Prompt Payment Act at 4.75 percent per annum, a decrease of 1 percent from the previous six-month period.  72 … Continue Reading
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