GC-190 DCMA vs. DCAA - Who s Winning the War? Christine Williamson, Member, Watkins Meegan LLC Kristen Soles, Member, Watkins Meegan LLC
Session Content Background Public Awareness Skirmishes An Uneasy Truce A Look Forward
Background
Prelude to War July 2008, GAO issued the first of several very critical audit reports on DCAA Followed by a public flogging of the new Director (April Stephenson) and the agency by Sen. Claire McCaskill (D-MO) before a Senate Subcommittee on Government oversight December 2008, DCAA over-reacted with draconian Audit Guidance Memos (AGMs) changing the grading scale for contractor systems to pass/fail and recommending suspension of payments to those who (in their opinion) failed January 2009, DCAA began sending system disapprovals and recommendations for suspension of payments to ACOs
The Shot Heard Round the Industry The ACOs at DCMA were the officials to whom DCAA started recommending suspension of payments in early 2009 Reactions to the recommendations ranged from nothing to complete suspension of all payments on Government contracts (at least on DoD contracts) Lacking any meaningful guidance, most ACOs did nothing DCAA reacted in April 2009, with another draconian AGM
The Shot Heard Round the Industry Identified by DCAA as 09-PAS-004 Required auditors to report to DOD IG when DCAA advice to a Government Official is ignored (aimed at ACOs) And they started doing it
Meanwhile, Back at the Ranch September 2009, GAO issued follow-up to July 2008 report Of 69 reports reviewed, NONE met GAGAS standards Much of the blame for shortcomings were blamed on over-emphasis on metrics over quality DoD IG conducted bi-annual peer review of DCAA, opined that DCAA could NOT claim reports to be GAGAS-compliant Senate hearing on the same day the report was released, chaired by Senator Claire McCaskill (D-MO), was brutal Five Senators issued a joint press release calling for DCAA to be removed from DoD and be made independent Patrick Fitzgerald named to replace April Stephenson
Events in Review 2008 2009
When the Smoke Cleared DCAA held the high ground with A new Director from outside the agency (first ever) Support from both the Pentagon and Congress for staff increases A stated policy of quality over all and complete abolishment of metrics Aggressive AGMs reflecting a tough on contractors posture An even more aggressive AGM creating the threat of an IG investigation for any ACO that ignored a DCAA recommendation DCMA was mired in the trenches with Aging and inadequate staff largely preparing to retire Inadequate internal guidance to support the actions of ACOs The specter of an IG investigation hanging over everything they did Their own problems with Congressional criticisms especially over administration of contracts in Iraq/Afghanistan
Public Awareness
Awareness in the General Public Outside the GovCon community, few knew anything about what was going on Congress was clueless The Pentagon quickly realized that a framework was needed in which DCAA and DCMA could operate, if not cooperate
Awareness in GovCon First recognition of the shift of power from DCAA to DCMA came from articles in the GovCon press Washington Technology Government Executive The Federal Times e-newsletters and Blogs from organizations like Watkins Meegan The Professional Services Council Deltek (through GovWin, CLARITY and the GovConToday Blog)
Awareness in Congress Congressional awareness came through testimony and lobbying by groups like The Professional Services Council The Coalition for Government Procurement National Defense Industrial Association (NDIA) Council of Defense and Space Industries (CODSIA)
Awareness Results The last three National Defense Authorization Acts (NDAAs) have contained specific appropriations for development of the Acquisition Workforce (to beef up DCAA and DCMA) DCMA because they were truly understaffed DCAA because their abandonment of metrics allowed audit times to balloon out of control Average time to audit a competitive proposal more than doubled from <30 days to >72 days Time to complete an incurred cost audit more than tripled (none were even planned for 2011) DoD quietly began to shift power and authority from DCAA to DCMA
There s good backlog and bad backlog DoD quietly began to shift power and authority from DCAA to DCMA
Skirmishes and Casualties
Communications The new command structure at DCAA made sweeping changes, causing field audit offices to shut down communications with contractors Some contractors could not learn the findings of completed audits even when they were required to develop corrective action plans Some were told to get audit reports from the ACO under FOIA Resulted in new AGM issued September 2010 entitled The Rules of Engagement
Communications Identified by DCAA as 10-PAS-024 Clearly establishes contractors rights to Entrance conferences and opportunity to explain basis of assertions Exit conferences and a summary of findings Copies of both draft and final reports when Government interests not compromised
Communications And the winner is DCMA (with sole authority to release final reports) and Contractors (who now have clear bill of rights )
Withholding of Payments DoD rushed to address the lack of a rules framework for determination of the adequacy of contractor business systems DFARS Business Systems proposed rule published in early 2010 Second version published in Dec. 2010 after much comment from both industry and DoD activities Third version published in May 2011 Final DFARS Business Systems Rule defined 6 systems, listed criteria for adequacy and set forth clear mechanisms for action against inadequate systems
The Final Rule Issued 18 May 2011, and effective immediately Defined six business systems Accounting Estimating Material Management and Accounting Systems (MMAS) Purchasing Government Property Earned Value Clearly established the ACO as the sole authority for determination of adequacy for ANY of the systems Promulgated clauses to be inserted in DoD and limited withholding actions to CAS-covered contracts containing the clause(s)
Result of the Final Rule Distinct shift in power from DCAA to DCMA Strict limitations on amounts, resolution times and contracts subject to withholds No authority vested in DCAA for any approval or disapproval ONLY advisory to the ACO DCAA audit (review) of systems limited to the first three (accounting, estimating and MMAS) No involvement by DCAA in review of purchasing, property or EVM systems except by DCMA request
Meanwhile, Back at the Ranch DCAA AGM 09-PAS-004 (reporting to IG of recalcitrant Government officials) quietly removed from DCAA Open Audit Guidance (no rescission ever published) DCMA responsible for: field price reviews on cost type proposals less than $100M and; fixed type proposals under $10M will be sent to DCMA [for review by DCMA pricing specialists]. (DCAA will be responsible for audits of proposals above these thresholds)
Withholding of Payments And the winner is DCMA (who no longer lives in fear of the IG) and Contractors (who now have clear system criteria) and Lawyers, CPA firms and Bloggers (who now have fresh material on which to pontificate ad nauseum)
An Uneasy Truce
The Terms of the Truce DCAA seems to have embraced its advisory role (sorta) The clear criteria of the Business System Rule have made system reviews more objective, but not easier Finding and recommendations still lack consistency The recommendations often continue to be reported even though the ACO has approved the system or declined to act PCOs treat DCAA recommendations as if they were disapprovals despite the Rule
Meanwhile Back at the Ranch DCAA (currently at 4,800 EEs) added 500 new auditors to its ranks in 2011 and plans to add at least 1,000 more by 2015 DCMA is currently staffed at: Civilian employees 10,252 Military personnel 562 Contractor support personnel 19,825 Total 30,639 The 2013 DoD budget includes more than 2,000 new billets in the acquisition workforce, most of which are earmarked for DCMA More than 50% of DCMA s management is eligible to retire in the next 3 years
At the Front Lines DCAA is desperately auditing incurred costs to ensure no 2006 cost claims trip the statute of limitations Despite the urgency, time to audit continues to increase Findings are very inconsistent Some findings are extreme, with no basis in FAR or DCAM Nearly every audit results in a Form 1, Notice of Intent to Disallow Costs, to the ACO There are no Audit Determined Rates anymore all rates are settled by the ACO, but ACOs are still reluctant to do anything other than what DCAA recommends
A Look Forward
A Look Forward The truce may break down if Sequestration actually happens (different presentation) Sequestration could consume so much of the resources in the acquisition workforce that DCAA might have the opportunity to reassume some of its lost authority Sequestration could also force incurred cost audits back to a lower priority, raising the specter of the statute of limitations
Who Won? You Decide DCAA It lost apparent authority assumed over years of practice It lost real authority over some business systems It lost the confidence of Congress and, to a large extent, the support of Management at the Pentagon It has instituted a single metric for all evals costs questioned encouraging inexperienced auditors to take extreme positions It has lost much of the civilian agency work they used to depend on to defray costs EPA, DOE, and HHS have already taken steps to contract out their audits NIH and NASA are said to be considering the same
The Civilian Uprising DOE Director of Management Ingrid Kolb said: DCAA s growing timeliness problems have led to problems with contract close-outs. The problems are so bad, she said, that DOE is turning to private firms to do the audits instead, even though private firms cost significantly more on an hourly basis than DCAA auditors.
Who Won? DCMA The Bus Sys Rule only reiterated the authority granted to the CO by FAR, but nothing new The Rule also set stringent limits on its actions The ACOs incurred costs/final rates workload has increased dramatically as DCAA takes the approach to just send the ACO a Form 1 and move on
Who Won? For contractors, it s a mixed bag The Bus Sys Rule applies some controls over payment withholds that s a win DCAA continues to report recommendations on system inadequacy as if they were determinations that s not a win The ACO is now the sole arbiter of rates, both forward pricing and final but workload and resources continue to constrain real progress that s a draw DCAA is largely unresponsive to requests for provisional rate approval that s a loss
Who Won? I almost forgot! Like any parent of quarrelling children, DoD has won to some extent DCAA and DCMA have reached an accommodation that both can live with- at least for now No one is firing live rounds across the borders at least for now The IG has retreated to his lair without a live sacrifice for now And, Congress is distracted between Sequestration and the elections they have no time for internal DoD squabbles for now Now if things could just stay quiet for a while (except like with kids, when it s quiet, you get nervous they are up to something.)
Call to Action / Contact Us
Call to Action / Contact Us 8000 Towers Crescent Drive Tysons Corner, VA 22182 www.watkinsmeegan.com Christine Williamson, Member (703) 847-4412 Christine.Williamson@WatkinsMeegan.com Kristen Soles, Member (703) 847-4411 Kristen.Soles@WatkinsMeegan.com