ABA Section of Public Contract Law
Accounting, Cost & Pricing Committee

AGENDA
August 8, 2004 Meeting

I.         Informational Items

  1. Contract Pricing and Cost Accounting – Compliance with DFARS 252.211-7003, Item Identification and Valuation, by Deidre A. Lee, Director of Defense Procurement and Acquisition Policy.  July 9, 2004.  The Director of Defense Procurement and Acquisition Policy issued guidance that should be used by all DOD contracting personnel in pricing and accounting for DOD contracts subject to the provisions of FAR Part 31 and the applicable Cost Accounting Standards.  The memo states that costs necessary to comply with DFARS 252.211-7003 are generally allowable, provided they comply with applicable assignment and allocability requirements of the CAS and FAR Part 31.
  2. DODs Acquisition Policies and Guidance Need to Incorporate Additional Best Practices and Controls, GAO Report No. 04-722, July 30, 2004.  DODs revised policies and guidance largely incorporate 10 best practices for acquiring any type of information technology (IT) business system.  For example, the revisions include the requirement that acquisitions be economically justified on the basis of costs, benefits, and risks.  However, the revisions generally do not incorporate 8 best practices relating to the acquisition of commercial component-based systems.  DOD intends to expand its acquisition guidance to incorporate additional best practices by September 30, 2004, but department officials cite other priorities as a reason why they have not been able to complete this effort and could not provide a plan specifying how this will be accomplished.  Until DODs revised policies and guidance incorporate key systems acquisition best practices, the risk that system investments will not consistently deliver promised capabilities and benefits on time and within budget is increased.
  3. Guidance Needed to Promote Competition for Defense Task Orders, GAO Report No. 04-874, July 30, 2004.  Competition requirements were waived for nearly half (34 of 74) of the multiple-award contract and federal supply schedule orders GAO reviewed.  Often, contracting officers waived competition based on requests from the program offices to retain the services of contractors currently performing the work.  In addressing these requests, safeguards to ensure that waivers were granted only under appropriate circumstances were lacking.  Specifically, guidance for granting waivers did not sufficiently describe the circumstances under which a waiver of competition could be used.  In addition, the requirements for documenting the basis for waivers were not specific, and there was no requirement that waivers be approved above the level of the contracting officer.
  4. Marshall Associated Contractors, Inc. And Columbia Excavating, Inc. (J.V.), IBCA No. 2088, July 29, 2004.  Bureau of Reclamation 1983 road construction contract in the Utah mountains.  The damages to appellant ranged from $127,125 to $2,374,616.  Although the Board states that the record is one of the most voluminous the Board has ever had to deal with, there is an apparent lack of original records.  Appellant argues that because of this lack of original records, the only reasonable approach is for the Board to award Appellant all of the total costs in excess of its bid, less payments already received. The Board discusses the limitations on the total cost claim, but ultimately issues a jury verdict decision awarding appellant $1,000,000 plus interest.

 

II.        Regulatory Developments

  1. Senate Version Of DOD Authorization Bill (SB 2400).  Senate version of the DOD Authorization Bill contains important differences from the House version concerning the submission of cost or pricing data on noncommercial modifications of commercial items.  The Senate version states that the commercial items exception to noncommercial modifications of commercial items does not apply to cost or pricing datathat are expected to cost, in aggregate, more that $500,000.
  2. DOD:  Proposed Rule re: Amending DFARS Tax Procedures For Overseas Contracts, 69 FR 46129, August 2, 2004.  Enclosed for potential comment is a proposed rule that would amend the Defense Federal Acquisition Regulation Supplement to update tax relief for acquisitions conducted in certain foreign countries.  This proposed rule is a result of a transformation initiative undertaken by DOD to dramatically change the purpose and content of the DFARS.  Draft comments should be submitted by September 17, 2004 to meet the October 1, 2004 deadline.

 

The next meeting will be on Tuesday, September 14, 2004.

Guest Speaker:  Howard A. Rubel, Managing Director, Schwab Soundview Capital Markets on the Topic of What Next, Now That The Industrial Base Has Become Rationalized

Howard brings more than 20 years of experience following aerospace and defense and diversified companies to Schwab SoundView Capital Markets.  He has been recognized by numerous publications including the Wall Street Journal for stock picking and earnings accuracy and has been ranked ten times by Institutional Investor magazines All-American Analysts Survey.  Most recently, he was with Goldman Sachs for nearly ten years, and prior to that he was with C.J. Lawrence, where he began his career in 1981.  Howard has a BS in Accounting, magna cum laude, from Washington and Lee University and earned a Masters of Management from Northwestern University in 1981

I.     Informational Items

  1. Tommy G. Thompson, Secretary of Health and Human Services, v. Cherokee Nation of Oklahoma, CAFC No.02-1286, July 3, 2003. CAFC affirms a decision of the IBCA that found the Secretary of the DHHS breached his contracts with the Cherokee Nation of Oklahoma.  Court held ...that there were available appropriations to pay the appellee its full indirect costs, because there were no statutory caps on funding in the appropriations acts for the relevant fiscal years, and that the Secretary has not shown that full payment would require the Secretary to reduce funding for programs, projects, or activities serving [another] tribe.  Judge Dyk discussed appropriations law, including a holding that the language available until expended in the statutes at issue did not denote a statutory cap on funding to a particular source, but as an authorization of carryover authority.

 

  1. Singleton Contracting Corporation, ASBCA 51692, August 8, 2003.  Board sustains appeal for termination for convenience settlement costs, but denies appeal for unabsorbed overhead and overhead on contractors direct costs.  Fixed-price construction contract was terminated for convenience of the Government prior to issuance of notice to proceed (NTP).  Appellant (SCC) submitted a T/C settlement claim and a claim for unabsorbed overhead resulting from delay in issuing the NTP.  SCC is not entitled to recover for Government delay that was fully concurrent with SCC-caused delay.  SCCs unabsorbed overhead claim was rejected based on the recent Federal Circuit holding in Nicon, Inc. that precluded unabsorbed claims prior to the start of contract performance.  Although overhead on SCCs direct costs may have been proper, SCC never met its burden in proving such costs.

 

C.    United States v. Newport News Shipbuilding, Inc.,  No. CIV.A. 03-142-A, August 14, 2003.  Government sued shipbuilder that held government contracts for construction of military transport vessels, claiming that shipbuilder violated FAR and False Claims Act (FCA) by charging efforts to develop commercial transport vessels as Independent Research and Development (IR&D), as indirect expense allocable to government contracts. Shipbuilder moved for summary judgment. The District Court, Ellis, III, J., held that (1) general practice of charging efforts to IR&D, to extent that efforts were mandated under commercial contracts, was FAR violation; (2) there were fact issues as to whether certain efforts were properly allocated to IR&D; (3) fact issues as to whether IR&D allocations were made knowingly or recklessly, precluded summary judgment of liability under FCA; (4) fact issues precluded summary judgment whether shipbuilder violated FCA by not disclosing its practice of charging IR&D; and (5) there were fact issues precluding summary judgment that shipbuilder reasonably relied on counsel in charging IR&D.  Motion Denied.

D.   Propellex Corporation v. Les Brownlee, Acting Secretary Of The Army, CAFC No. 02-1538, September 9, 2003.  Army contract.  Court affirms the ASBCA which had denied contractors modified total cost claim because Propellex had failed to establish that it was impracticable for it to prove its actual losses directly.  Judge Schalls opinion notes that to prevail on a modified total cost theory the contractor must prove:  (1) the impracticability of proving its actual losses directly; (2) the reasonableness of its bid; (3) the reasonableness of its actual costs; and (4) lack of responsibility for the added costs.  The court found substantial evidence supporting the ASBCA decision and holds that Where it is impractical for a contractor to prove its actual costs because it failed to keep accurate records, when such records could have been kept, and where the contractor does not provide a legitimate reason for its failure to keep the records, the total cost method of recovery is not available to the contractor.

E.    Newport News Shipbuilding, And Dry Dock Company v. US, COFC No. 98-183C, September 10, 2003.  CAS 415 (Accounting for the cost of deferred Compensation) case.  Judge Smith grants Newports motion for summary judgment finding that the measurement date of CAS 415-50(e)(1) for valuing Newports costs was the period when the stack was awarded to individual employee accounts.  The court rejected the governments argument that the proper date for evaluation of the shares was when the company had first transferred stock to a trust fund for the deferred compensation plan.

F.    Lockheed Martin Corp., Naval Electronics & Surveillance Systems-Surface Systems, ASBCA No. 53032, October 15, 2003.  Lockheed Martin, the leader company on a Navy contract to qualify a second source team to compete and supply the AEGIS AN/SPY-1 radar system antenna and transmitter, is entitled to an $86 million gross settlement on the convenience termination of that contract, but cannot recover fee on subcontract effort on the uncompleted portion of the contract.

G.   Dyncorp Information Systems, LLC v. US, COFC No. 01-16C, November 10, 2003.  Summary judgment.  Decision concerned language in the Contract Disputes Act of 1978 whether in effect on the date of this contract for purposes of applicable cost accounting standards means date the contract was executed or the designated effective date.  Issue was whether the regulation preventing the contractor from recovering costs on stepped-up assets does not apply because contracts effective date preceded effective date of CAS standard.

H.   Hansford T. Johnson, Acting Secretary of the Navy v. Advanced Engineering & Planning Corporation, Inc. D. E.D. Virginia, No. CIV.A. 03-652-A, November 17, 2003.  Navy appeals an ASBCA decision which allowed the contractor to recover its preparation costs for a request for equitable adjustment (REA).  Court affirms the ASBCA finding that, when submitted, the REA was not a claim under the Contract Disputes Act.  The Court agreed with the ASBCA that the REA was not a claim as it had not been certified in accordance with FAR 33.207, but only in accordance with the requirements of DFARS 252.243-7002, implementing 10 U.S.C. Section 2410(a).

  1. BAE Systems Technical Services, Inc., B-293070, January 28, 2004.  In competition conducted pursuant to Office of Management and Budget (OMB)Circular A-76, where in-house cost estimate (IHCE) for performance by the governments most efficient organization (MEO) fails to include costs for various performance work statement (PWS) requirements, and the additional costs required for the MEO to meet all PWS requirements are greater than the marginal difference between the protesters evaluated cost and the IHCE, General Accounting Office recommends that agency award a contract to the protester based on its lower-cost proposal.

 

  1. Focus of New Acquisition Panel Debated, by Jason Peckenpaugh, February 17, 2004.  A soon-to-be-named panel of acquisition experts has the chance to fix serious shortcomings in the federal procurement system, observers say, but some fear the panel will pursue the agenda of federal contractors and a powerful Republican congressman.  The acquisition panel is the creation of Rep. Tom Davis, R-Va., who added language establishing it to the fiscal 2004 Defense Authorization act.  The panel will have a year to survey performance-based contracting, government-wide contracts and the use of commercial acquisition practices, according to its authorizing language.  Likely to be on the agenda: share-in-savings contracting, where agencies share profits generated by projects with contractors, and expanding commercial acquisition practices.

 

  1. Appeals Of Lockheed Martin Corporation, Naval Electronics & Surveillance Systems – Surface Systems, ASBCA Nos. 53032, 54064, March 10, 2004.  Court finds that in a termination for convenience situation, the terminated contractor has the burden of showing that it is entitled to payment. In cost-reimbursement contracts, it would be necessary for the contractor "to prove the actual cost incurred in manufacture in order to secure the plus profit." In fixed-price contracts, however, the court allows adjustment upon terminating a contract to be made on the basis of estimate.

 

  1. Department of the Army – Modification of Remedy, B-292768.5, March 25, 2004.  Protest costs, including attorneys fees, need not be allocated between protest issue that was sustained and issues that were not addressed or denied in decision where all issues were related to the same core allegation, which was sustained; since issues not addressed or denied were not distinct and severable from the sustained issue, attorneys fees relating to those issues are reimbursable.

 

  1. B.V. Construction, Inc., ASBCA Nos. 47766, 49337, 50553, April 22, 2004.  On this NASA construction contract the ASBCA grants the appeals on most issues, converts a termination for default to one for convenience, vacates an assessment of excess procurement costs and allows a claim for damages including unabsorbed overhead.  Judge Hartman finds that NASA waived the contracts completion date and never established a new reasonable date before terminating for default.  The Board also found appellant had been damaged as a result of differing site conditions and defective specifications.  The Board found appellant entitled to Eichleay damages for 727 days.

 

  1. Virginia Sales Tax Increase Issue.  The Virginia legislature recently increased the state sales tax from 4.5% to 5%. This means that the cost of contractor purchases in Virginia charged to overhead will increase in proportion.  Fixed price and fixed price incentive negotiated , noncompetitive contracts with the Government include the Taxes clause at FAR 52.229-4, which grants a right to a price increase for new or increased state and local taxes occurring after contract award.  The courts have not decided whether this right to a contract price increase applies to sales taxes included in overhead purchases. During the California refund process in 1991-1996, the Government took the position that the clause applied to refunds of sales taxes charged to overhead.  It would thus necessarily follow that the clause would apply as well to tax increases on overhead purchases.

 

  1. Rumsfeld v. General Dynamics Corp., CAFC No. 03-1209, April 29, 2004.  Court reverses-in-part a decision by the ASBCA.  10 U.S.C. section 2324 (k) does not require or permit the apportionment of contractor costs associated with a proceeding among various claims where the proceeding is resolved through consent or compromise, and no such costs are allowable except as expressly provided by the settlement agreement.

 

  1. Coalition Provisional Authority Procurement Order Number 87, May 14, 2004.  This order establishes rules for procurement of goods, services, and construction services by the State of Iraq.  The order establishes full, fair, and open competitive public bidding procedures, international standards of transparency, procurement process integrity, offerors right to file tender protests, and tender dispute resolution mechanisms.

 

II.        CAS Board Developments

  1. Employee Stock Ownership Plans (ESOP). Cost Accounting Standards Board (CASB), Office of Federal Procurement Policy, invites public comments on proposed amendments to the Cost Accounting Standards (CAS), Cost accounting standard for composition and measurement of pension cost, and Accounting for the cost of deferred compensation.  Proposed amendments address recognition of the costs of Employee Stock Ownership Plans (ESOPs) under Government cost-based contracts and subcontracts issues. Proposed amendments provide criteria for measuring costs of ESOPs and clarify that accounting for the costs of ESOPs will be covered by the provisions of Accounting for the cost of deferred compensation, not by any other Standard.  [ACP Committee submitted comments.]
  2. OMB: Cost Accounting Standards Board; Accounting for the Costs of Post-Retirement Benefit Plans Sponsored by Government Contractors, Notice of withdrawal of Advance Notice of Proposed Rulemaking, 68 FR 53312, September 10, 2003.  The CAS Board is providing public notification of the decision to discontinue the development of a CAS addressing the recognition of costs of post-retirement benefit plans under government cost-based contracts and subcontracts.

 

III.      Regulatory Developments

A.   DOD Grant and Agreement Regulations; Final Rule, 68 FR 47149, August 07, 2003.  DOD is adding a part to the DOD Grant and Agreement Regulations (DODGARs) to incorporate policies and procedures for the award and administration of technology investment agreements (TIAs). TIAs are a new class of assistance instruments used to support or stimulate defense research projects involving for-profit firms; especially firms that do business primarily in the commercial marketplace. The new part gives DOD agreements officers greater flexibility to negotiate award provisions in areas that can present barriers to commercial firms (e.g., intellectual property, audits, and cost principles). DOD also is revising additional parts of the DODGARs to conform to the new part. Final rules are effective September 8, 2003.

B.    Revision to the Department of Labor Acquisition Regulations, Notice of Proposed Rulemaking, 68 FR 48995, August 15, 2003. Document sets forth a revised Department of Labor Acquisition Regulation (DOLAR).  DOLAR was last revised in 1986. The regulation has been substantially revised to:

1.     Update references to obsolete policies, procedures, and organizations;

2.     Incorporate electronic links to reference such as revised provisions of the FAR, U.S. Code, and the Code of Federal Regulations;

3.     Incorporate Office of Federal Procurement Policy Letters, and Executive Orders; and establish revised procedures that follow current established best practices.

4.     The DOLAR provides a definition for Agency Head, which is inconsistent with the internal Department of Labor Manual Series (DLMS) Chapters 2-800 and 2-900 that establishes DOL procurement operating procedures and policies. Future changes to the DLMS will comport with this definition. 

5.     Interested parties should submit comments on the proposed rule at the address, shown below, on or before October 14, 2003 to be considered in the formulation of the final rule.

C.    DOD, GSA, NASA:  Final Rule Re: Economic Planning, Employee Morale, and Travel Cost Principles, 68 FR 56686, October 1, 2003.  Final rule amending the FAR to revise cost principles concerning economic planning costs; employee morale, health, welfare food service, and dormitory costs and credits; and travel costs.  According to the agencies, the revisions were written to remove unnecessary and duplicative language.

D.   DFARS Case 2001-D013, Provisional Award Fee Payments, 68 FR 64561, November 14, 2003.  DOD has issued a final rule amending the DFARS to address the use of provisional award fee payments under cost-plus-award-fee contracts.  The rule provides for successfully performing contractors to receive a portion of award fees within an evaluation period prior to a final evaluation for that period.  Effective date:  January 13, 2004.

E.    Federal Acquisition Regulation:  Depreciation Cost Principle, Final Rule, 68 FR 69246, December 11, 2003.  The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) have agreed on a final rule amending the FAR to revise the depreciation cost principle to improve clarity and structure, and remove unnecessary and duplicative language.  Effective date:  January 12, 2004.

F.    Federal Acquisition Regulation:  Insurance And Pension Costs, Final Rule, 68 FR 69251, December 11, 2003.  The Councils have agreed on a final rule amending the FAR to revise the insurance and indemnification cost principle, and the portion of the compensation for personal services cost principle relating to pension costs.  The rule revises both cost principles by improving clarity and structure and removing unnecessary and duplicative language.  Effective date:  January 12, 2004.

G.   Federal Acquisition Regulation:  Insurance And Pension Costs, Final Rule, 68 FR 69251, December 11, 2003.  The Councils have agreed on a final rule amending the FAR to revise the insurance and indemnification cost principle, and the portion of the compensation for personal services cost principle relating to pension costs.  The rule revises both cost principles by improving clarity and structure and removing unnecessary and duplicative language.  Effective date:  January 12, 2004.

H.   Defense Federal Acquisition Regulation Supplement:  Payment Withholding, Final Rule, 68 FR 69631, December 15, 2003.  The DOD has issued a final rule amending the DFARS to provide additional flexibility when determining the need to withhold payments under time-and-materials and labor-hour contracts.  The rule clarifies that normally there should be no need to withhold payment for a contractor with a record of timely submittal of a release discharging the Government from all liabilities, obligations, and claims under a contract.  Effective date:  December 15, 2003.

I.      DOD, GSA, NASA – General Provisions of Cost Principles, Final rule, 69 FR 17764, April 5, 2004.  Councils have agreed on a final rule amending the FAR to revise certain general provisions of the cost principles pertaining to Composition of total cost; Determining allowability; Direct costs; and Indirect costs.  The rule revises the cost principles by improving clarity and structure, and removing unnecessary and duplicative language.  The revisions are intended to revise Contract Cost Principles and Procedures in light of the evolution of GAAP, the advent of Acquisition Reform, and experience gained from implementation of FAR Contract Cost Principles and Procedures.  The final rule also adds the definition of direct cost and revises the definition of indirect cost to be consistent with the terminology used in the cost accounting standards (CAS).  Effective Date:  May 5, 2004.

J.     Determination of Executive Compensation Benchmark Amount; OMB 69 FR 26897, May 14, 2004.  The OMB published the maximum "benchmark" compensation amount that will be allowable under government contracts during contractors FY 2004 – $432,851. This applies equally to both defense and civilian procurement agencies.

K.   FAR Case 204-006, Gains and Losses, Proposed rule, 69 FR 29379, May 21, 2004.  The Councils are proposing to amend the FAR by revising the cost principle regarding gains and losses on disposition or impairment of depreciable property or other capital assets.  Interested parties should submit comments in writing on or before July 20, 2004, to be considered in the formulation of a final rule. [Comments of the ACP Committee have been incorporated]

  1. Federal Acquisition Circular 2001-24, 69 FR 34223, June 18, 2004.  This document summarizes the FAR rules agreed to by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council in Federal Acquisition Circular 2001-24.  A companion document, the Small Entity Compliance Guide, follows this FAC.  Items include:
    1. Incentives for Use of Performance-Based Contracting for Services (Interim)
    2. Definitions Clause
    3. Procurement Lists
    4. Determining Official for Employment Provision Compliance Immigration and Nationality Act (INA)
    5. Federal Supply Schedules Services and Blanket Purchase Agreements (BPAs)
    6. Designated Countries-New European Communities Member States
    7. But American Act-Nonavailable Articles
    8. Application of Cost Principles and Procedures and Accounting for Unallowable Costs
    9. Gains and Losses, Maintenance and Repair Costs, and Material Costs
    10. Technical Amendments
  2. DOD, GSA, NASA:  Final Rule Re: Amend FAR Cost Principles, 69 FR 34241, June 18, 2004.  The . . . Council have agreed on a final rule amending the FAR by revising FAR 31.204, Application of Principles and Procedures, to improve the clarity and structure of the regulation.  Effective date:  July 19, 2004.
  3. Federal Acquisition Regulation Case 2003-00-8, Proposed Rule Re: Share-In-Savings Contracting, 69 FR 40513, July 2, 2004.  The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) are proposing to amend the FAR to implement Section 210 of the EGovernment Act of 2002.  Section 210 authorizes Governmentwide use of Share-in-Savings (SIS) contracts for information technology.  SIS contracts offer an approach for encouraging industry to share creative technology solutions with the Government.  Through a properly structured SIS contract, agencies may lower costs and improve service delivery without large up front investments by having the contractor provide the technology investment and allowing the contractor to share with the government in the savings achieved.  Interested parties should submit comments in writing on or before August 31, 2004 to be considered in the formulation of a final rule.
  4. DOD, GSA, NASA:  Final Rule Re: Gains And Losses, Maintenance And Repair Costs, And Material Costs, 69 FR 34242, June 18, 2004.  The . . . Councils have agreed on a final rule amending the FAR by deleting the cost principle regarding maintenance and repair costs, and revising the cost principles regarding contingencies, material costs, and training and education costs.  The rule revises the cost principles by improving clarity and structure, and removing unnecessary and duplicative language.  The revisions are intended to amend the FAR regarding contract cost principles and procedures in light of the evolution of generally accepted accounting principles (GAAP), the advent of acquisition reform, and experience gained from implementation of the FAR regarding contract cost principles and procedures.  Effective date:  July 19, 2004.

 

IV.      Audit Guidance

A.   Defense Contract Audit Agency Testing of Employee Time Records - June 23, 2003. New audit guidance relating to Mandatory Annual Audit Requirements (MAAR) No. 6 reviews.  These reviews relate to labor cost charging and allocation evaluation (interviews) and/or observations of work areas (floor checks).

B.    Government Auditing Standards - June 25, 2003. Comptroller General David M. Walker announced release of a new edition of Government Auditing Standards (Yellow Book).

C.    GAO Report-High-Level Attention Needed to Transform DOD Services Acquisition, GAO 03-935, September 2003.  DOD should strengthen its contracting management structure for services and business processes to promote use of best practices such as centralizing key functions, conducting spend analyses, using commodity teams, achieving strategic orientation, reducing purchasing costs, and improving performance.  DOD also needs a strategic plan on how the military departments could best accomplish this.

D.   Defense Contract Audit Agency (DCAA) Releases Audit Guidance On Final SEC Rulings Relating To Sections 204, 302, 404, 406, and 407 of Sarbanes-Oxley, October 8, 2003.  The guidance primarily affects the planning of internal control, incurred cost, and financial capability audits, and is effective immediately.  Related changes to the DCAAs Contract Audit Manual and Audit Planning and Performance System will be included in the January 2004 updates of those documents.

E.    New Accounting Board Proposes Expanding The Role Of Auditors.  The Public Company Accounting Oversight Board proposed their first set of audit standards, expanding the role of auditors in ensuring adequate controls are in place to prevent fraud at their clients.  Under the proposed rules, auditors would have to give their assessment of the effectiveness of a companys internal controls.  Currently, the SEC has required only company executives assess the adequacy of internal controls.  The SEC and PCAOB rules go into effect in June 2004 for most public companies, and April 2005 for small businesses and foreign private issuers.

F.    Some DOD Contractors Abuse the Federal Tax System with Little Consequence, GAO Report 04-095, February 12, 2004.  DOD and IRS records showed that over 27,000 contractors owed about $3 billion in unpaid taxes as of September 30, 2002. DOD has not fully implemented provisions of the Debt Collection Improvement Act of 1996 that would assist IRS in levying up to 15 percent of each contract payment to offset a DOD contractors federal tax debt. We estimate that DOD could have collected at least $100 million in fiscal year 2002 had it and IRS fully utilized the levy process authorized by the Taxpayer Relief Act of 1997. As of September 2003, DOD had collected only about $687,000 in part because DOD provides contractor payment information from only 1 of its 16 payment systems to TOP. DOD had no formal plans at the completion of our work to provide payment information from its other 15 payment systems to TOP.

G.   DCAA Audit Guidance on Orders Under GSA Schedule Rates, April 9, 2004.  Relying on FAR 52.232-7 payments under T&M and Labor Hour contracts, DCAA has questioned time charges under subcontracts with small businesses where a portion of the work was performed by a second-tier subcontractor on non-GSA rate contracts.  This is contrary to GSA rules where the subcontractor is permitted to charge based on its negotiated labor rates.  In some instances a significant portion of the work would be non profit-bearing under this interpretation by the DCAA.

H.   DCAA Audit Guidance on Employee Compensation For Contractor Employees Located In Foreign Countries And Performing Work Under Iraq Reconstruction Contracts, April 12, 2004.  This memo summarizes responses to a survey performed to give assistance in determining the reasonableness of compensation costs.  FAR states that compensation for each employee or job class of employees must be reasonable for the work performed, and that to test reasonableness, one factor is conformity with compensation practices of other firms – (i) of the same size; (ii) in the same industry; (iii) in the same geographic area.  The memo summarizes other firms policies on hardship pay, danger pay allowances, sign-on bonuses, rest and relaxation allowances, assignment completion bonuses, and foreign service premiums for contractors in Iraq.