Changes to Audit and Truth in Negotiations Act in FY 2018 NDAA

by Pillsbury Winthrop Shaw Pittman LLP
Contact

Pillsbury Winthrop Shaw Pittman LLP

For DoD acquisitions, the Conference Report for FY 2018 NDAA includes provisions that would streamline the DCAA Incurred Cost Audit process by involving private auditors and increase the TINA threshold

Takeaways

  • Conference Report requires the government to retain private auditors for a “sufficient” number of Incurred Cost Audits to eliminate backlog by October 1, 2020.
  • Conference Report requires faster responses from DCAA, including completion of Incurred Cost Audits within one year from reception of contractor’s “Qualified’ Incurred Cost proposal.
  • Conference Report significantly raises TINA threshold to $2 Million and thereby reduces the number of contractors subject to TINA.

On November 8, 2017, the U.S. Senate and House Armed Services Committees announced that they had reached agreement to reconcile the different versions of the NDAA for Fiscal Year 2018 passed by the Senate and House earlier in the year. The Senate unanimously approved the compromise legislation on November 16, sending it to President Trump to sign into law. The 2018 National Defense and Authorization Act Conference Report sent to the President leaves little question that Congress remains unhappy with the Defense Contract Audit Agency’s (DCAA) audit backlog and, therefore, mandates that DCAA personnel function more like commercial auditors in regard to audit timeliness and risk. Interestingly, however, the Conference Report also rejects a controversial 2017 NDAA provision that would have allowed contractors to use private auditors of their own selection to perform ICP audits. We set forth below the provisions that reflect these and other important changes contractors should anticipate.

  • DCAA Incurred Cost Proposal (ICP) Audits. Conference Report Section 803 adds 10 U.S.C. §2313b which, among other requirements, includes language that:

- Directs DCAA to comply with commercially accepted standards of risk and materiality in performing each incurred cost audit for DOD contractors.

- Requires that DOD use “qualified private auditors” to perform a sufficient number of incurred cost audits so that backlog is eliminated by October 1, 2020.

- Requires that incurred cost audits must be completed in one year from the date the Government receives a “qualified incurred cost submission.” After October 1, 2020 any audit findings not issued within one year shall be considered “complete” and further audit work will be barred-subject to waivers that must be submitted for approval by the Director of DCAA to the Comptroller of DOD.

- Directs DOD not to differentiate between private auditors and DCAA when considering audit results.

- Requires peer review by a commercial auditor of DCAA’s unqualified audit findings.

- Requires that DOD notify a contractor within 60 days after receipt whether its ICP is “qualified.”

  • Contractor Use of Commercial Auditors Rejected. Conference Report Section 804 strikes subsection (f) of NDAA 2017 Section 820(b) which was to add Section 1909 to Title 10 of US Code. Subsection (f) would have allowed contractors to use a commercial auditor and would have required the DOD to accept their findings without performing additional audits.
  • Simplified Acquisition Threshold (SAT) Increase. Section 805 increases the SAT from $100,000 to $250,000.
  • Truth in Negotiations Act (TINA) Changes. 2018 NDAA Section 811 increases the TINA threshold significantly from $750,000 to $2 million for all contracts entered into after July 1, 2018. Section 811 also revises language in 10 USC §2306a(d) from affirmatively requiring the contracting officer (CO) to request other than cost or pricing data to the extent necessary to requiring the contractor to provide other than cost or pricing data only “if requested by the contracting officer.”

Where Do We Go From Here?
These provisions are fairly drastic—very possibly leading to a sea change in how DCAA will operate in the future. It is clear that Congress has tired of waiting on DCAA to police itself and eliminate the audit backlog which has been a millstone around government agencies and contractors alike. Contractors should welcome these changes—they portend less TINA application and quicker turnaround on resolution of ICPs so that contractors can resolve any issues before they include potentially disputed costs in several additional ICPs. However, there are certainly key unknowns. For example, what standard will emerge for defining a “qualified” ICP triggering the one year audit time limit—the current language appears prone to Government subjectivity and possible abuse in order to prevent the running of the one year clock. Similarly, what will be the real impact of terminating unfinished audits? It seems likely that this will force DCAA to focus on the most significant costs first and, at a minimum, complete audits of those costs. In any event, contractors should pay close attention as these changes play out and be facile enough to adjust to the unknowns.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Winthrop Shaw Pittman LLP | Attorney Advertising

Written by:

Pillsbury Winthrop Shaw Pittman LLP
Contact
more
less

Pillsbury Winthrop Shaw Pittman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.