Cost/Cost Accounting

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The Defense Contract Audit Agency (“DCAA”) recently made public its Fiscal Year 2017 Report to Congress, which, among other things, provides an update on incurred cost audits.  Specifically, the report explains that DCAA:

  • Closed “6,786 incurred cost years” using a variety of methods, namely reports and memos, but also for other reasons (e.g., per the FY 2016 NDAA, DCAA was prohibited “from providing audit support to non-DoD agencies”);
  • Sustained audit exceptions for incurred costs audits 28.6% of the time;
  • Reduced the backlog related to incurred cost audits “to an average age of 14.3 months;” and
  • Is “on track to eliminate the backlog by the close of FY 2018” as it now has “under 3,000 incurred cost years in [such] backlog….”
  • “[W]ill be current on incurred cost based on a two-year inventory of audits” by FY 2018 and “will move to one year of inventory as required” in the FY 2018 NDAA.

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Contractors looking for updates to the statutory allowable cost limits on employee compensation may be looking in the wrong place.  But what was once lost can easily be found, at least for the moment, by simply navigating to a different website.

The Cost Principles and the Compensation Cap

FAR 31.205-6(p)(4) governs the allowable compensation of contractor and subcontractor employees.  It promulgates section 702 of the Bipartisan Budget Act of 2013 (“BBA”), which set an initial limit on allowable contractor and subcontractor employee compensation costs at $487,000 per year.  “Compensation” is defined broadly to include the total amount of wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans.  According to the BBA, the cap is to be adjusted annually based on the Employment Cost Index calculated by the Bureau of Labor Statistics.  The BBA repealed the prior existing formula for determining the relevant compensation cap under 41 U.S.C. § 1127 and applies to contracts awarded on or after June 24, 2014.  It also provided agencies with the authority to establish “one or more narrowly targeted exceptions” for certain specialists.

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On March 1, the President announced his intention to impose tariffs of 25% on all imported steel and 10% on all imported aluminum. A more formal announcement of the tariffs is expected in the coming week and, while many might have been surprised by the timing of the President’s initial statement, it came after a 10-month process of investigation by the U.S. Department of Commerce, culminating with its January 2018 recommendation for tariffs or quotas to protect U.S. producers. The Commerce Department reports are available here and here.

When finalized, these tariffs could have significant impacts on contractors across a range of industries, increasing costs of performance and restricting available supply. Domestic prices are expected to rise, and foreign suppliers may turn their focus to other markets. Supply disruptions are possible, particularly in the short term. To protect themselves, federal contractors who manufacture or use products with steel or aluminum should examine existing contracts, re-evaluate bids being developed, and consider revisions to standard contract terms.

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Crowell & Moring is hosting Government Contracts 101 in our Washington, D.C., office on Thursday, October 26, 2017.  This all-day event will last from 8:30 a.m. to 6:30 p.m. at 1001 Pennsylvania Ave, N.W., and provide an overview of the full scope of issues that government contractors face on a daily basis.  We will cover …

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Contractors that use a fiscal year ending 12/31 submit their annual cost submissions in June of the following year.  For 2010 incurred cost submissions (ICS) submitted in June 2011, many contractors may receive affirmative claims from the Government seeking to disallow some or all of those incurred costs, because the Government has a 6-year statute…

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Our 33rd annual Ounce of Prevention Seminar has come to a close and was a great success. Thank you to all of our attendees and panelists who participated in the event, which covered a range of topics from investigations and cybersecurity to labor and employment. This year’s agenda particularly focused on how contractors are …

During the past year, we have continued to see developments on cost and pricing issues, particularly with respect to the 2017 National Defense Authorization Act (“NDAA”). On May 5, 2017 from 11:00 am – 12:00 pm, Crowell & Moring attorneys Terry Albertson, David Bodenheimer, Chris Haile, Steve McBrady and Liz Buehler will highlight some of…

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The Government Contracts Group is counting down to Crowell & Moring’s 33rd annual Ounce of Prevention Seminar (OOPS), which will be held on May 4 and 5 at the Renaissance Hotel in Washington. This year’s seminar, “Strategizing for Government Contractors’ Game Plan Under the New Administration,” will provide insider insight and practical advice across a…

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In Lockheed Martin Integrated Systems, Inc. (ASBCA Dec. 20, 2016), a case involving a $100 million breach of contract claim stemming from purportedly unallowable direct subcontractor costs, the Board granted Lockheed Martin’s motion to dismiss the Army’s untenable claim “for failure to state a claim on which relief could be granted,” concluding that the government…