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. 
 Continue Reading DoD Acts To Rein In DCAA (Again)

Not so long ago, we called your attention to a troubling trend in the natural order of Government contracting. First, we recounted how DCAA has initiated itself into the dark art of intimidation. Then we described how a contracting officer’s mere disagreement with the DCAA could result in an IG referral for a poor CO who comes out on the other side of a DCAA recommendation. And when last we resumed our chronicle, we recalled that a call for an end to these frontal assaults on CO independence was issued – not only by us in the last several months – but by an ABA Ad Hoc Committee some 22 years ago.
Continue Reading Top Ten Reasons DCAA Should Let COs Do Their Bloody Job

In an attempt to promote "protection" and "provide transparency," the FAR Councils recently issued a final rule formally mandating Government Accountability Office ("GAO") auditor access to interview contractor personnel during an audit of the contractor’s records.  This final rule published on October 14, 2009 adopted, without change, an interim rule issued March 31, 2009, implementing section 871 of the Duncan Hunter National Defense Authorization Act for 2009 ("Section 871"), as codified at 41 U.S.C. 254d(c)(1) and 10 U.S.C. 2313(c)(1)."   The American Recovery and Reinvestment Act of 2009 (the "Recovery Act") provides a similar interview right, but the Recovery Act provision extends that right to agency inspector generals.  Congress limited Section 871 interview rights to the GAO.
 Continue Reading GAO Allowed to Interview Current Contractor Employees During the Audit of the Contractor’s Records

If you are a company that has received funds under the American Recovery and Reinvestment Act of 2009 (also known as “ARRA,” “the Recovery Act” or “the Stimulus Act”) and that has a requirement to report the data required under the Act (under FAR 52.204-11 and Section 1512 of the Act), you have until the end of this week (October 10, 2009) to report this data through the new website www.federalreporting.gov.
 Continue Reading It’s Time to Report That Stimulus Information That You’ve Been Collecting — Are You Ready?

Recently, contractors have begun receiving formal requests for information from the Defense Contract Audit Agency (“DCAA”). The purported purpose of these requests is to “[o]btain an understanding of the management control environment” of major government contractors. In pursuit of this goal, DCAA has crafted a letter that demands, among other things, the following:

  • A list of all ethics training, copies of agendas, and attendee lists
  • Copies of the company’s written Codes of Conduct, copies of the policies dealing with communications of the Code, and a list of employees who have acknowledged receiving the Code over the past 12 months
  • A list of all violations of the Code over the past 12 months
  • All “noncompliances” reported through the contractor’s internal control system (such as a hotline) within the past 12 months
  • A “company-wide list of any current open investigations”

Continue Reading What Exactly Is DCAA Thinking?

On May 19, 2009, the Federal Circuit in Secretary of the Army v. Tecom upheld the contracting officer’s disallowance of a contractor’s legal costs and settlement expenses in a sexual harassment and retaliation action brought under Title VII. The opinion is sweeping, and appears to extend the holding in Boeing North American, Inc. v. Roche, 298 F.3d 1272 (Fed. Cir. 2002) to almost every instance in which the contractor elects to settle in lieu of litigating cases to a conclusion.
 Continue Reading Federal Circuit Casts Cloud on Future Recovery of Settlement Costs in Non-Fraud-Related Cases

Last month, in what one of my colleagues has described as a “lucid rant,” I discussed the recent DCAA Memorandum for Regional Directors calling for increased referrals to agency Inspectors General of contracting officers engaged in such dastardly conduct as awarding contractors “unreasonable or excessive costs and/or profit” under their Government contracts, with “unreasonable” and “excess” defined to mean whatever DCAA on any given day deems them to mean.
 Continue Reading “DCAA And the Art of Intimidation” – Some Historical Perspective

A recent DoD Inspector General Report issued on April 8, 2009 continues the intra-governmental assault on the independence of contracting officers in the disposition and compromise of contracting disputes. Billed as the “first in a series of reports we plan to issue on the actions that contracting officers took in response to audit reports of DoD contractors involved in Iraq reconstruction efforts,” the IG Report (D-2009-6-004), takes issue, inter alia, with contracting officer decisions relating to the compromise of a dispute with respect to a credit for self-insurance costs and to the recognition of a cost accounting change as “desirable,” thereby rendering allowable the increased costs associated with the change. Both contracting officer decisions had at least one characteristic in common, i.e., they disregarded the recommendations of the DCAA.
 Continue Reading The Assault on Contracting Officer Independence Continues Apace

On March 31, 2009, the FAR Councils issued several new interim rules (effective March 31, 2009) implementing the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) (also known as ARRA, The Recovery Act, or the Stimulus Act). See Federal Acquisition Circular (FAC) 2005-32, published at 74 Federal Register 14621-14652. The FAC issued new interim rules on a number of areas required under the Stimulus Act, including:

  • Reporting Requirements for Recipients of Recovery Funds (see 74 Federal Register 14639) 
  • Publicizing Contract Actions (see 74 Federal Register 14636) 
  • GAO and IG Access to Company Employees (see 74 Federal Register 14646) 
  • Whistleblower Protections (see 74 Federal Register 14633) 
  • Buy American Requirements for Construction Materials (see 74 Federal Register 14623)

This blog focuses on the final three sets of rules – those relating to Auditor access; Whistleblower protections; and Buy American requirements. The first set of rules is discussed separately here.
 Continue Reading New Recovery Act Rules Implement Provisions Relating To Government Audit Access, Whistleblower Protections, And Buy American Requirements; Much Confusion Remains

A March 13, 2009 Memorandum for Regional Directors introduces a new level of formality in DCAA’s unceasing quest to intimidate and control contracting officers in the exercise of their discretion.

Contracting Officers have long been reluctant to disregard recommendations made by DCAA with respect to the treatment of costs, notwithstanding the fact that many of DCAA’s recommendations are based on legal conclusions that, by education and experience, auditors are not qualified to make. Indeed, some of these recommendations seem so clearly out of phase with the text and purpose of the applicable regulations that they remind one that, in the 2000 movie “O Brother Where Art Thou?” George Clooney’s character had been imprisoned for the unauthorized practice of law. Nonetheless, DCAA recommendations have a significant chilling effect on the willingness of Contracting Officers to “do the right thing.” Even when the correct decisions are ultimately made, they are often made only after a protracted period of unnecessary angst and aggravation.

But nothing is so bad that it cannot be made worse. Apparently dissatisfied with existing DCAA procedures for elevating “unsatisfactory conditions relating to actions of Government officials” – now, there is a mouthful – which entail the successive elevation of issues and complaints through ascending levels of Government management, DCAA has decided it is time to turn informer and refer these officials to the DODIG for investigation. Now, we are sure that there are a number of instances in which this kind of direct referral makes sense – like bribery and other forms of self-dealing – but, please is it really an IG-worthy event if an auditor believes that a Contracting Officer “awards a contractor unreasonable or excessive costs and/or profit”? That, friends, is the one specific example given by the DCAA MFR of “an action that is grossly inconsistent with procurement law and regulation.”

There are many institutions that, over the years, have used intimidation, threats, and strong arm tactics to arrogate unto themselves a level of de facto power that, de jure, was not theirs to exercise. Many of these have, thankfully, long since passed from the scene. DCAA would be well to remember that it functions as an advisor, not a dictator, and that Contracting Officers are individuals vested with discretionary decision-making powers, not puppets of the audit agency.

Authored by:

John W. Chierichella

(202) 218-6878

jchierichella@sheppardmullin.comContinue Reading DCAA And The Art Of Intimidation