It has been noted, the more things change, the more they stay the same. In the world of Government Contracts Law, however, the more things change, the more the phone rings. And while we’re only a few weeks into 2013, the phone has been ringing off the hook. Here are a few of the reasons why.Continue Reading...
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 proposed, was modified in the final legislation. While Congress directed DCAA to issue new guidance regarding auditor access to internal audit reports, Congress stopped short of giving DCAA actual authority to demand such reports. As such, contractors will remain at loggerheads with DCAA auditors who try to exceed their statutory authority.Continue Reading...
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 soon change. Section 843 of the Senate version of the 2013 National Defense Authorization Act (S. 3254) would grant DCAA broad access to contractor internal audit information.Continue Reading...
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 finalized, with changes. See 77 Fed. Reg. 4632 (Jan. 30, 2012). This final rule is a mixed bag that got some things right, but also leaves some of the most serious issues unresolved.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 hoped to advance the state of the art without stifling a contractor’s innovation under the weight of a federal bureaucracy, while simultaneously banking on the fact that the U.S. Government also will benefit from the technology advancements. But two recent developments may change the essential nature of IR&D, making it less “independent” and more “dependent” on Government rights and oversight. To quote Bob Dylan – “the times they are a changin’.”
By John W. Chierichella and Ryan E. Roberts
On January 11, 2011, Ronald Youngs, Acting Executive Director, Contracts, Defense Contract Management Agency (“DCMA”), issued Information Memorandum No. 11-108 regarding Forward Pricing Rate Recommendations (“FPRR”). This memorandum implemented a mandate included in the September 14, 2010 memorandum of Ashton B. Carter, Under Secretary of Defense for Acquisition, Technology & Logistics, entitled “Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending.” In an attempt to reduce the overlap between DCMA and the Defense Contract Audit Agency (“DCAA”), Mr. Carter directed that “where DCAA has completed an audit of a particular contractor’s [Forward Pricing Rate Proposal (“FPRP”)], DCMA shall adopt the DCAA recommended rates as the Department’s position regarding those rates.”
By: John W. Chierichella and W. Bruce Shirk
We previously noted DCAA’s hasty implementation of the Court of Appeals for the Federal Circuit’s (“CAFC’s”) decision in Gates v. Raytheon Co., 584 F.3d 1062 (Fed. Cir. 2009), requiring daily compounding of interest on adjustments made to rectify Cost Accounting Standards (“CAS”) noncompliances. DCAA Implements Federal Circuit Decision Requiring Interest Compounded Daily on Adjustments for CAS Noncompliances (June 14, 2010). We say “hasty” because – while noting that its holding was required by Canadian Fur Trappers v. United States, 884 F.2d 563 (Fed. Cir. 1989) – the panel expressed reservations regarding that decision’s validity, commenting that appellee’s (Raytheon’s) arguments “may support the proposition that Canadian Fur Trappers was erroneously decided.” Not surprisingly, Raytheon accepted this implicit invitation to petition for rehearing en banc, and that petition is currently pending. Nonetheless, the FAR Councils are now rushing to mimic DCAA by proposing in equally hasty fashion to extend the holding to overpayments under the Truth in Negotiations Act (“TINA”). 75 Fed. Reg. 57719-57721 (Sept. 22, 2010).
By John W. Chierichella and W. Bruce Shirk
Under our system of laws, legal liability has customarily been based on certain showings, e.g., that an act or omission actually caused an injury, with liability usually measured by the aggrieved party’s actual loss. These useful legal constructs have served us well over the years in helping to avoid misuse of the law through the imposition of liabilities without proof of injury or without regard to the damage actually caused by the alleged misconduct. Proximate cause, injury in fact and proportionality of response were nice concepts while they lasted, but they appear to have outworn their welcome within the Department of Defense. Under regulations proposed by DOD, it would soon have the power to withhold anywhere from 10 percent to 100 percent of the payments otherwise due and owing to its contractors. The basis for this withholding would be a mere determination by the Defense Contract Audit Agency that one or more “deficiencies” exist in any of the following contractor systems: cost estimating, earned value management, or EVMS; material management and accounting, or MMAS; accounting; purchasing; and property management.
Click here to read this entire article by John W. Chierichella and W. Bruce Shirk, which was originally published by Thomson Reuters in its July 12, 2010 issue of the Westlaw Journal Government Contract (formerly Andrews Litigation Reporter) and is reprinted here with permission.
DCAA's Promises Of A "New Mode of Operation" Leading To "Mutually Beneficial Relationships" Evaporate Within Less Than Three Months
By W. Bruce Shirk and John W. Chierichella
Just three months ago, newly appointed DCAA Director Patrick Fitzgerald told contractors and acquisition agencies that his agency’s new mode of operations would aim at developing “mutually beneficial relationships” with both contractors and DOD acquisition agencies. DCAA would spring “no surprises” on contractors; it would conduct “more frequent communication with” them; DCAA would assure the provision of “responsive and timely services to agency stakeholders”; and – in a marked sea change from its traditional attitude, DCAA would abide by DOD direction that, while “the contracting officer and auditor work together… it is the contracting officer’s ultimate responsibility to determine fair and reasonable contract values.” (DCAA, Director’s Message, CODSIA Operating & Policy Committees Meeting, March 10, 2010, ppt slide 12; Memorandum, Office of the Undersecretary of Defense for Acquisition, Technology and Logistics, Subject: Resolving Contract Audit Recommendations, December 4, 2009).
On January 15, 2010, the Department of Defense announced plans to amend the Defense Federal Acquisition Regulation Supplement (“DFARS”) to allow contracting officers to withhold payments from companies with “deficient” business systems in an effort to prevent “unallowable and unreasonable costs on government contracts.” 75 Fed. Reg. 2457. Contracting officers would have the authority to withhold payments on cost reimbursement, incentive, time-and-materials, and labor-hour contracts.