Is DCAA a mandatory source of Contract Audits?

I don't see why not. I've heard Shay Assad, Charlie Williams, Jr. and Ron Youngs all mention that DCMA is seriously considering use of independent third party auditors. So if it's not policy now, I don't think it's prohibited.

But I'm curious whether you've read FAR 15.504-2 and whether you've concluded that you need field pricing assistance. What's preventing you from negotiating a fair price, even without an audit report?

Hope this helps.

We are not negotiating a new contract - we already have the FFP construction contract. I was wondering if we require a waiver from DCAA to get an outside agency to do an audit.

A quick look at FAR Part 42, DFARS 242 and PGI, AFARS, and EFARS found no such requirement. One of them did mention that a request for audit support should include a due date. It would seem that if the due date had come and gone, and reasonable follow-ups met with unreasonable delay, the file could be documented accordingly, and after appropriate internal approvals, one could proceed with contracting for audit services. Also, there was mention of inter-agency agreements. It would be necessary to learn what those have to say about the subject.

Just a side comment--DCAA is having big problems. They are unresponsive, slow, and getting in the way of many procurements. Something needs to happen and soon. Government agencies are starting to do their own audits.

According to DOD Directive 5105.36, dated 4 January 2010, para. 3, DCAA "shall provide all necessary contract audits for the Department of Defense... ." According to para. 4.c, "No separate contraact audit organization independent of DCAA shall be established in the Department of Defense."

Does "No separate contract audit organization independent of DCAA shall be established in the Department of Defense" mean that we can not contract with a commercial entity in support of USACE DoD.

We are not creating an audit organization "in the DoD". We are considering contracting with a commercial entity to provide contract audit services.

I found the same info you all did - I find it ambiguous at best. I am unable to locate a clear answer to whether we can contract out audit services or not.

Unless, of course, I am not reading the material as it is meant to be read.

BLUF: Can we contract with a private company to perform an audit on a FFP construction contract greater than $10M?

We (USACE - DOD) have a FFP construction contract greater than $10M on which we want an audit performed. We requested an audit from DCAA on 11 Jun 2010. We received a Risk Assessment working paper B on 31 May 2011. We received nothing else. The DCAA website states that they "shall perform all necessary contract audits for the DOD". Do we need a waiver to contract out the audit and, if so, what is the process for requesting one?

Thanks.

If you are in DoD, see DOD Instruction 7600.02. It might give you some ideas.

Waiting ten months for a DCAA audit is ridiculous. I would just get an audit from a commercial accounting firm and document the reason. You might also publicize your efforts and become a legend in the bureaucracy

Those of you advocating the use of private accounting firms to audit contractor proposals should perhaps take a look at OFPP Policy Letter 11-1, Performance of Inherently Governmental and Critical Functions, dated September 12, 2011, 76 Fed. Reg. 56227 - 56242, and pay special attention to the new definitions of "inherently governmental functions," "critical functions," and "closely associated functions." I'm not saying that you cannot hire contractors to perform proposal audits. I don't know whether you can or not. However, it might not be a simple matter.

Thanks to all. We are not looking to audit a proposal - we are looking for an audit on a FFP construction contract.

Proposal, incurred costs -- they are the same in terms of function. The auditor gets access to private information and makes judgements.

Thanks to all. We are not looking to audit a proposal - we are looking for an audit on a FFP construction contract.

What aspect of a FFP construction contract are you looking to have audited?

Thanks to all. We are not looking to audit a proposal - we are looking for an audit on a FFP construction contract.

What clause in the contract are you relying upon as the authority for such an audit and what is it that you want audited?

Navy, Retread:

A CO administering a fixed-price construction contract might want an audit for any of a number of reasons. Most likely, the contractor has requested an equitable adjustment due to one or more change orders, a differing site condition, defective specifications, defective GFP, or a government delay of work, or it might be seeking a unit price adjustment due to a variation in quantity of a unit-priced item. Such things are quite the norm in construction work. The contract is worth more than $10 million, so one or a combination of proposed or claimed adjustments might easily eceed the TINA threshold, require the submission of certified cost or pricing data, and thus require cost analysis. The CO does not need a contract clause for an audit, not if the contractor hopes to settle without litigation. No big deal.

"The CO does not need a contract clause for an audit, not if the contractor hopes to settle without litigation. No big deal."

My point was that the CO should not need an audit to negotiate an equitable adjustment.

H2H

So you say. But it's up to the CO to decide what he needs. He may be negotiating with the contractor based on incurred costs and may want to verify the amount and allowability of the costs incurred. If a CO issues a change order, nothing requires the contractor to request the equitable adjustment before costs have been incurred.

Navy, Retread:

A CO administering a fixed-price construction contract might want an audit for any of a number of reasons. Most likely, the contractor has requested an equitable adjustment due to one or more change orders, a differing site condition, defective specifications, defective GFP, or a government delay of work, or it might be seeking a unit price adjustment due to a variation in quantity of a unit-priced item. Such things are quite the norm in construction work. The contract is worth more than $10 million, so one or a combination of proposed or claimed adjustments might easily eceed the TINA threshold, require the submission of certified cost or pricing data, and thus require cost analysis. The CO does not need a contract clause for an audit, not if the contractor hopes to settle without litigation. No big deal.

Vern, I agree that if the contractor is seeking a price adjustment, the government would have the right to audit the request for an adjustment under the Audit clause, 52.215-2, which should have been included in the contract. However, no mention was made of a need to audit a request for a price adjustment. Instead, what was mentioned was an audit of the contract. The only right the government has to audit such a contract is to determine if it was defectively priced or for a CAS non-compliance.

Retread:

I understand all of that. I'm just trying to explain what I think the poster meant. I don't see the point of you guys pursuing him for his reasons. Why do your care? He asked a question. The answer is what matters.

But have at it. Maybe he'll answer you. I'm done.

USACE, if my memory serves me correctly you have to pay DCAA for audits despite you having the word "ARMY" in your name.

Of all the agencies that might be able to get around the "DoD must use DCAA," I would think USACE would have the best chance because you have the little snafu where you have to pay DCAA for audits.

This post is probably useless.., sorry about that. But this is again, a very interesting topic.

Thank you all for your input. Yes - we at USACE have to pay DCAA for audits. That is one of the reasons we were looking at contracting it out. The contractor has filed numerous claims against the contract - that is why we are requesting an audit. I agree - no clause is required. I love this forum - so much info to consider.

Thank you all for your input. Yes - we at USACE have to pay DCAA for audits. That is one of the reasons we were looking at contracting it out. The contractor has filed numerous claims against the contract - that is why we are requesting an audit. I agree - no clause is required. I love this forum - so much info to consider.

If you had said you wanted to have claims audited, you likely would have received answers that are different from those you received when you asked about having the contract audited. Those are entirely different things. The government is permitted to contract for expert witnesses in litigation. Because claims have been filed and litigation is possible if not likely, I believe you can contract for expert witnesses to assist you in evaluating those claims. Outside accountants would fall under the category of expert witnesses.

I believe that USACE only reimburses DCAA for Civil Works (CW) funded or other non-Military funded audits. Most USACE construction funding is for Military work. There are few large CW projects these days but there are lots of smaller CW and work for others projects.

Leo, unless DCAA has changed in the past 10-15 years, they still might not be well qualified to audit CW type construction contract actions that require use of the USACE Equipment Ownership and Operating Cost Manual for owned construction equipment (FAR 31.105(d)). The same goes for construction contract audits of firms which own their construction equipment but are primarily or exclusively using rented construction equipment on a project (same FAR reference) . After losing our internal CW auditors or for DCAA audits on some military projects that included contractor owned equipment, I always had to send DCAA an information paper that I developed for all construction contract audits within our District. The paper covered direct and indirect cost areas to look for and adjust when the USACE Owned Equipment rates were in the contract. It also discussed how to treat G&A and other proposed or claimed direct and indirect costs when rented equipment was being exclusively used.

Many government negotiators weren't (aren't?) familiar with the details in FAR 31.105(d), either, which is part of the problem. DCAA always expected a detailed technical analysis, but much of this type detail is cost analysis - which would normally be performed after the audit. We were spoiled when we had our own CW auditors because they were familar with construction audits and associated cost details. One couldn't usually rely on DCAA to be as thorough as our auditors were.

I know that some other organizations use the USACE Equipment Ownership and Operating Cost Manuals, too. The same problems with understanding and implementing FAR 31.105(d) may well be prevalent there, too. One of our former auditors is a WIFCON contributor. I think he would agree with me...

See the Defense Contract Audit Manual, 15-118, Supplemental Requirements for U.S. Army Corps of Engineers, paragraph a:

Requests for audit services will be issued by the individual USACE's contracting activities. Only audits of USACE Civil Works projects are reimbursable. Funds for Civil Works projects come from the Energy and Water Development Appropriation and not from DOD. DCAA provides audit support for USACE-funded Military contracts and agreements at no cost.

Perhaps this should be a new discussion thread, but I noticed that there is a March 7, 2013 DOD IG Report on DCAA. It found that DCAA failed to use "professional judgment" in 74% of the sample audits that the DOD IG reviewed. I've had limited exposure to DCAA, but that experience was negative - in line with the report. I know that it is no secret that DCAA has pervasive problems, but can anyone shed some light on why they are so bad exactly? I'm assuming that there is a confluence of contributing factors, but its surprising to me that they are allowed to continue on without a major restructuring of some sort. Thoughts? Comments?

Oyster,

In fact, DCAA did have a major turn-around in 2009, with a new Director being transferred in from US Army Audit Agency. Since then, the agency has implemented significant changes in its audit approach and multiple levels of management review.

The results of those initiatives have yet to be seen. The IG report you cite discusses audit reports issued in GFY 2010. What we do know is that DCAA's productivity (as measured by its own stats) has dropped by roughly 75 - 80%. It now takes significantly longer for DCAA to perform its work and to issue its reports, and its reports take significantly more audit hours to be produced.

So we know that DCAA has made the decision to trade timeliness for quality. What we don't know is whether or not they have achieved their quality goals. In GFY 2013, the agency is supposed to be "peer reviewed" and the results of that review ought to be a good indication as to whether or not the quality goals have been met. However, sequestration may have an impact on funding for that review...

(Actually I'm being very, very nice to DCAA in this post. I DO know how the audit agency is doing with respect to meeting GAGAS and quality standards. But my opinion is worthless to you, since I can't provide any evidence to support my assertions.)

If you are interested, one indicator I would consider monitoring is the caseload at ASBCA and Court of Federal Claims regarding disputed DCAA audit findings. My belief is that it's on the upswing, with the Government losing more than its fair share of the litigation. That ought to tell somebody something about both DCAA audit quality and the quality of the Contracting Officer's Final Decisions. But again, by the time a Court renders a decision, the matter is already several years old, so it doesn't tell anybody much about the way things are today.

If you want to better understand DCAA's audit quality challenges, check out what the IG said about inexperienced staff and inadequate supervision.

Hope this helps.

here_2_help: Thank you for your insightful post. I appreciate it. Good info.

Oyster - If you are wondering how knowledgeable the auditor is on what they have given you, give them a call and ask about the findings. What I've found in many recent audit reports issued is that DCAA is summarizing at a very top level with the blanket statement that copies of their work are available upon request for more specific information. Not that this is a bad thing, it can be very lengthy, but it seems to be hiding the true results of their work. Put in a call, ask them about their analysis they performed, you'll be very surprised at what you hear. I'm not sure DCAA is in that much of an upswing at the moment.