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A Practical Guide to the Incurred Cost Submission (ICS)

March 13-14, 2013 - Sterling, VA

 

Disclosure Statements and Cost Accounting Practices

March 19-20 - Arlington, VA

 

A Manager's Guide to EVMS

March 21-22 - Arlington, VA

   

Public Contracting Institute Seminars 

Preparing the Incurred Cost Submission (ICS)
April 9-10 - Irvine, CA

   

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CAPITAL EDGE NEWS
FEBRUARY 2013

National Defense Authorization Act's Impact on Executive Benchmark Amount 
 

The "Executive Benchmark Amount" is currently set at $763,029 as determined by the Office of Federal Procurement Policy (OFPP) for 2011 and beyond, until revised. The benchmark amount is the ceiling, beyond which Government contractors cannot bill the Government. However, it is well known and frequently discussed, that executive compensation for Government contractor employees remains a target for reduction by numerous Government officials. Several have made recommendations, so far without success, to drastically limit the amount of compensation that the Government will allow on its contracts. In late 2011, the President suggested that the formula approach used by OFPP should be set aside; and the ceiling amount should be fixed at $200,000.

 

The Senate Bill for the 2013 National Defense Authorization Act (NDAA) included a limitation on allowable Government contractor compensation of $230,700. The House did not accept the provision it its own Bill. Initially the House version included a proposed ceiling amount of $400,000, which is the President's salary. That ceiling amount was also not accepted in the final House Bill, which became the 2013 NDAA. The 2013 NDAA does establish the requirement for further evaluation of the impact of significant reductions in allowable Government contractor compensation. Section 864 of the 2013 NDAA, titled "REPORT ON ALLOWABLE COSTS OF COMPENSATION OF CONTRACTOR EMPLOYEES," directs the Comptroller General to, within 120 days of enactment of the NDAA, report to Congress "on the effect of reducing the allowable costs of contractor compensation of employees to the amount payable to the President under section 102 of title 3, United States Code, or to the amount payable to the Vice President under section 104 of such title." In plain language, the ceiling amounts to be considered are $400,000 (the President), and $230,700 (the Vice President). Congress is looking for the impact for imposing either amount as a ceiling. Our interpretation of this effort is that the goal is to maximize the potential contribution to budget/deficit reduction, and satisfy several political constituencies by further penalizing Government contractors. We anticipate that, if the Comptroller General doesn't reach the apparent desired conclusion, we can expect an Executive Order.

 

DCAA to Gather Information for NDAA?

 

The report requirements outlined in the 2013 NDAA represents an enormous amount of data, requiring a herculean effort to compile within the time frame specified in the Act. The requirement is to determine the "total number of contractor employees" affected by both ceiling amounts, for the years 2010, 2011, and 2012. Clearly, the Comptroller General itself does not have the resources to accomplish the analysis within 120 days. We anticipated that this tasking would likely be assigned to the Defense Contract Audit Agency (DCAA), who generally has access to the type of contractor financial information necessary to compile such a report. We were also curious how DCAA, with its commitment to eliminating its backlog of over 25,000 audits of Incurred Cost Submissions by 2014, would be capable of responding timely to Congress' request for information. 

 

What will be DCAA's solution? Make the contractors do it. We have been informed by several clients that they have recently received letters from DCAA instructing them to compile the requested information and provide it to DCAA in a specified reporting format. Further, (forget year end close; forget preparing financial statements; forget SEC and other required Government directed filings) the information is required to be provided to DCAA within about a two week period. The "audits clause" (FAR 52.215-2) states that the Comptroller General ("or designated representative") "shall have access to and the right to examine any of the Contractor's directly pertinent records involving transactions related to this contract..."  DCAA has apparently skirted this particular impediment by tying its requirement for the contractor to provide the information to specific audit assignment numbers it established for Incurred Cost Submissions submitted by contractors (obviously covering numerous contracts). Further, DCAA has ignored the portion of the "audits clause" that states in part, "...This paragraph may not be construed to require the Contractor or subcontractor to create or maintain any record that the Contractor or subcontractor does not maintain in the ordinary course of business or pursuant to a provision of law..." Finally, the data required by DCAA is limited to 2011. This limitation is inconsistent with, and limits, Congress' broader objective, to assess the impact for the "total number of contractor employees," presumably across all contracts, and for the period 2010 - 2012. 

 

Complying with the complete request apparently proved too difficult; and DCAA is now using a shortcut to meet the timeline. In one sense this particular DCAA shortcut is fine; it limits the volume of effort required to comply with DCAA's directive. However, we are concerned that the Comptroller General may make incorrect assumptions about the information it receives, which will not be consistent with the data it expected. Assumptions based on faulty data are certain to lead to faulty decisions and recommendations.

 

We recommend our clients remain actively engaged with their Congressional Representation, and professional organizations, in order to ensure Government contractors' viewpoints and concerns are considered.

 

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