The Contract is Open for Bid, But Are You Ready for DCAA?

The Contract is Open for Bid, But Are You Ready for DCAA?

 
You’ve found it…that perfect federal government contract that is up for bid. Your company’s expertise matches with the contract description; you have the right personnel with the right certifications; you can demonstrate competence and believe you have competitive pricing models which should put your company in the running. If you could secure this contract it would mean a big financial boon and a feather in your company’s cap.

Like a kid in a candy store you now can race through the application process, going from one thing to another and checking all the boxes. You, and probably several others in your company, will make sure your proposal is complete and polished with all the attachments needed. It’s exhausting…but potentially worth it…and soon the proposal will be out the door while you can then stand by with eager anticipation for the results.

But before you pop the cork and celebrate, are you sure you’re ready for DCAA?

If you’ve been through this process before, stay tuned and we’ll give you an important refresher course. For the uninitiated, here’s the skinny:

DCAA stands for Defense Contract Audit Agency. The DCAA assesses your compliance with Federal Acquisition Regulations (FAR), which is the prescribed way the federal government purchases goods or services with contractors. To be awarded a government contract, or keep a government contract, the DCAA will conduct a very extensive audit of your business, particularly its accounting methods and your financial ability to carry out the contract. This gets far more complicated than it even sounds.

Here are some examples of what DCAA will look for:

  • The three major types of proposals contractors will possibly submit are, 1) Time and Materials – which includes overhead costs, 2) Cost Reimbursable contracts and, 3) Fixed Price contracts. This gets tricky. Which type your contract falls under triggers different audits and standards. Even what seems like the simplest of proposals gets put through a rigorous auditing process. If your proposal calls for more than one type, get ready for a long audit and a lot of questions.
  • Labor expense and time tracking for government projects is a major hurdle. As a prudent business professional, you will likely shift personnel around from one project to another to make the best use of their time and your budget. But the DCAA is going to ask, “How are you keeping track of time spent on our project versus another project?” A company’s typical payroll process and time management system will not satisfy their inquiring minds.
  • You probably will not be allowed to use your grandpa’s accounting system with numerous spreadsheets and entries that must be carried over from one system or form to another. An approved accounting system is likely to have centralized data with the ability to track or allow direct costs, show indirect costs or cull out unallowable expenses. On top of this, your approved system will need to segment costs and labor by activity or project and preproduction costs from production costs. It will also need to keep track of charges by line item in your contract so that expenses are easily identified and checked off against the right item. DCAA is going to look for all things to be neat, tidy and almost automatic with little room for a bookkeeping error.

Ah, but wait…there are more considerations to be aware of when it comes to your contract proposal and DCAA:

  1. It used to be that this process was somewhat flexible. If you had a few deficiencies or the audit process found a few missing elements, you were given time to correct the issues. Some CO’s (contracting officers) might have even suggested a few fixes. Those days are gone. Your audit will now be given a passing or failing grade with no wiggle room. Not passing DCAA may preclude you from applying for other contracts or being a sub-contractor or partner on another project.
  2. If you use sub-contractors as necessary partners within your project, those subs will likely be subject to the same audit and mandates. Their pass/fail grade will have an impact on your entire project. Carefully check a sub-contractor’s capabilities before selecting them. Nepotism, or bringing in a member of your Good Ole Boy’s Club, is ill-advised.
  3. Selection is not a guarantee of future security. The audit and reporting process is ongoing once a project is underway, which can put reimbursement or future payments in jeopardy. Not fully understanding the process and ongoing requirements of DCAA can potentially put your company in financial risk.

We don’t mean to rain on your parade. Going after a government contract can be lucrative and well worth the process. Our suggestion, however, is to do a pre-DCAA run through of your own before the contracting officer shows up at your door. This will alert you to any potential deficiencies in the requirements, making the approval process easier and more assured.

Of course, that’s not so easy either if you don’t know what is involved or can’t run checks like the DCAA requires. If you need help, contact dave@foresightcfo.com. We’ll supply the complementary tissues if you feel like crying considering all this. But more importantly we’ve got the expertise to help you pass your audit…and an email to Dave doesn’t cost you anything but could gain you everything.