What’s at the Top of Your List, DCMA?!

The DCMA (Defense Contract Management Agency) discussed their key initiatives to include forward pricing rate development, disclosure statement revisions, pre-award supplier proposal reviews, and business systems disapproval decisions.

Let us start with one of the most important areas for the upcoming year – Forward Pricing Rate development.  Forward pricing audits took a noticeable backseat to incurred cost submissions but are however, back at the forefront of DCMA’s priorities.  During a time of economic uncertainty with government shut downs looming and the effects of sequestration still settling, the greatest challenge is forecasting a business base for your forward pricing rates.  The expenses or the numerator in the forward pricing rate tends to be easier to understand for both the contractor, the DCAA and the DCMA with the base driving these expenses. 

Think of a household with one child versus a household with two children.  While fixed costs such as a mortgage payment remains the same, variable expenses for a household with one child will be less than that of two children.  Similarly, contractors that forecast a reduction in base generally should have less variable expenses than those who forecast growth in their business base.  Auditors will be paying close attention to the variable expenses against a growing or waning business base.  Cost reduction initiatives should be in place if you anticipate having a declining business base.  Also in place should be a tracking mechanism to monitor these reductions in cost within a cost type environment.  In order to tackle the forward price audits, DCMA has established positions known as Cost Monitors within their organization in recent years to support the Divisional ACOs (DACOs) and Corporate ACOs (CACOs).  Cost Monitors have been key to getting issues resolved more efficiently when DACOs and CACOs have been overwhelmed with the current backlog.

Currently DCMA has a backlog of 1300 disclosure statement revisions which have not been evaluated.  The key word here is revision. While a DCAA audit is required for an initial submission of a disclosure statement, disclosure statement revisions do not require a full audit for approval.  An audit and/or cost impact study may still be requested for revisions with substantial changes to the disclosure statement but they are not a requirement for approval.  The DCMA is working on getting this backlog of disclosure statement revisions approved within a 24 month time frame.  It is important to note that there have been instances of contracting officers denying awards due to the contractor having a disapproved revised disclosure statement which should not be the case.  Disapproved disclosure statement revisions should not hold up a contract award.  This also stresses the fact that contracting officers should maintain contact with ACOs to clarify any questions they may have regarding status of disclosure statement revisions and audits.

In the past it was the norm to have 80 percent of work performed by a prime and 20 percent performed by suppliers.  We now live in an environment where the opposite is taking place and suppliers are performing a sizeable amount of work.  Because of this, DCMA has put more emphasis on supplier proposal reviews, particularly pre-award rather than post award.  DCMA has established the Mobile Pricing Support team to address these supplier proposal reviews.  The Mobile pricing support team places employees in locations necessary during pricing peaks.

Commercial pricing has also been receiving attention in recent months.  There have been growing instances where for example, the Navy will determine a proposal falls within the commercial sector and should therefore be priced commercially.  As the DCMA begins reviewing proposals, it finds that the Department of Defense is the only buyer for this particular “commercially” priced proposal.  This in turn, would significantly change many of the requirements and regulations for pricing.  Occurrences like these have generated more discussion around commercial pricing leading the DCMA to engage more in review of commercially priced proposals.

Lastly, if you are a contractor that has received disapproval to one of your business systems under the Business Systems rule, you may find it interesting to know that the DCMA has instituted a Business System Review Panel to review the ACO’s disapproval decision.  According to the DCMA Executive Director of Contracts, 71 panels have been held with about one panel held a week.  Nine of the disapprovals were not supported by the panel out of the 71 determining that there are checks and balances now in place.  Of the 62 disapproved, 13 were approved after contractors made corrective actions.

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