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News and Events : PVBS Newsletter December 2007Click here for the complete newsletterWelcome from Bernard Mustafa, PVBS CEO Pleasant Valley Business Solutions Partner Articles Microsoft Dynamics NAV and Industry News for Government Contractors =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-
Welcome from Bernard Mustafa, PVBS CEOWelcome to the December 2007 issue of the High-Growth Government Contractor newsletter from PVBS.As we look back on 2007, we are very excited to see the growing number of high-growth government contractors that have moved to Microsoft Dynamics NAV for Government Contractors from PVBS. Many of these companies have graduated from a basic entry-level accounting application with limited functionality, such as QuickBooks, and needed a more feature-rich, intuitive solution. Others have moved from older, inflexible legacy programs such as Deltek GCS Premier. And others were looking for a great Microsoft solution and found it with Dynamics NAV. We're particularly excited about two of our customers that have had a great deal of success moving to Dynamics NAV from less functional programs. EMW (Herndon, VA, www.emw.com) and Dovèl Technologies (McLean, VA, www.doveltech.com) have been servicing many Defense, Civilian, and Intelligence agencies for years. We published case studies on both companies on our web site this month. The EMW case study represents something we frequently see, which is the need for DCAA compliance. EMW expected to start winning a large number of contracts around the world to service the Federal Government and wanted to ensure that the financial systems were well established in advance of the expected DCAA (Defense Contract Audit Agency) audits on their cost-plus and other contracts. The EMW COO said, "We can see how Dynamics NAV lets us do more with less." Dovel leadership knew that the growing company had well exceeded the capabilities of QuickBooks. They needed an accounting solution that the DCAA would approve and were convinced that DCAA would not approve their usage of QuickBooks, an accounting software solution that was not designed to meet the needs of government contractors least of all ones that were growing quickly. QuickBooks was enough to get the company started but once it started winning Federal Government business, it quickly became a liability that threatened the company's growth. Finally, we'd like to wish all of our clients, partners, friends, and colleagues a great holiday season and a prosperous and successful 2008. Best regards,
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Pleasant Valley Business Solutions Partner ArticlesHouse Approves Changes in Set-Aside ProgramsThis article was submitted by Business Research Services Inc. (Bethesda, MD), publishers of Set-Aside Alert. Subscription information can be found at www.setasidealert.com. The House has passed legislation giving new preferences to service-disabled veterans, increasing the limit on sole source contracts, and overhauling the 8(a) program. The Small Business Contracting Program Improvements Act, H.R. 3867, would also allow immediate implementation of the set-aside program for woman-owned businesses, but the Bush administration says that provision may be unconstitutional. The House approved the bill Oct. 30 on a 334-80 vote. It was sponsored by Small Business Committee Chairwoman Nydia Velazquez, D-NY, and Rep. Mary Fallin, R-OK. It now goes to the Senate. The Senate Small Business Committee approved a separate contracting bill. Sole Source Contracts: The House bill would increase the limits on sole source awards to $5.1 million, up from $3 million, and $5.5 million for manufacturing, up from $5 million. The new limits would apply to 8(a), HUBZone and service-disabled veteran-owned businesses. Service-Disabled Veterans: The bill provides equal treatment for SDV companies and 8(a) firms, moving SDVs to the head of the line for set-asides. It would eliminate the “rule of two” for SDV companies; they could receive sole source awards without regard to whether a second SDV business is capable of doing the work, the same preference that applies to 8(a) firms. In addition, the bill directs that priority be given to businesses owned by the most severely disabled veterans. Women’s Set-Aside: The bill would immediately implement the long-delayed set-aside for woman-owned businesses. Agencies would be allowed (but not required) to set aside contracts in certain industries without waiting for SBA to adopt a rule implementing the program. (See below for a list of eligible industries.) In a policy statement, the White House Office of Management and Budget said the Bush administration “opposes the bill’s constitutionally suspect creation of gender-based set-asides.” OMB argued that the set-aside might not stand up to a court challenge under Supreme Court decisions limiting affirmative action. The bill passed by a margin far greater than the two-thirds needed to override a presidential veto. But the administration could refuse to implement the set-aside on constitutional grounds, setting up another round of litigation. The bill extends the time for participation in the 8(a) program to 10 years, from the current nine. HUBZone Program: The bill’s tough new restrictions on HUBZone businesses would cripple the program, according to Ron Newlan, chairman of the HUBZone Contractors National Council. HUBZone set-asides would be discretionary rather than mandatory, as under current law. That would move those companies to the back of the line for set-asides. The bill requires SBA to conduct a site visit to a HUBZone firm before it receives its second set-aside contract. It restricts HUBZone construction companies to work no more than 150 miles away their home office. GSA Schedules: The bill expresses “the sense of the House of Representatives” that GSA schedule orders between $3,000 and $100,000 should be set-aside for small businesses. Currently all other contracts in that range are mandatory set-asides, but GSA contends that its schedules are exempt from the requirement. SBA disagrees, and the issue has been appealed to the Government Accountability Office for a decision. (SAA, 9/28). Rep. John Mica, R-FL, offered an amendment to require set-asides on GSA schedules, but withdrew it before a vote. Instead the House accepted his non-binding amendment favoring the set-asides. Protests: The bill would give any small business the right to protest an award in any category. For example, an 8(a) company could protest a HUBZone award, and vice versa.
Contractor Must Take Responsibility for OversightBy K. D. “Ken” Bricker, CPA, DABFA Senior Partner Goodman & Company, Government Contractor Services Group A contractor’s goal should always be to assure they are administering, (which includes estimating, accumulating and reporting costs) within the guidelines of the FAR and in compliance with all of their contracts. While the Procuring Contracting Officer (PCO) is responsible for the content of a given contract, typically an Administrative Contracting Officer (ACO) is assigned responsibility for a contractor and the administration of any contracts they may hold. Accordingly, if the cognizant agency is the Department of Defense (DoD), the Defense Contract Management Agency should act as the Contract Administration Office (CAO). The assigned ACO is then responsible for assuring that the contractor meets their obligations to have an adequate accounting system and that the contractor provides timely incurred cost submissions to the cognizant auditor as well as many other administrative functions required by the FAR and likely included in the contracts. In accordance with Federal Acquisition Regulation (FAR) Part 42, Contract Administration and Audit Services, at 42.003(a) “For contractors other than educational institutions and nonprofit organizations, the cognizant Federal agency normally will be the agency with the largest dollar amount of negotiated (emphasis added) contracts, including options.” Cognizance in this case refers to the responsibility for general contract administration and audit of a government contractor. The list of responsibilities covered in Subpart 42.3 is voluminous and the FAR attempts to alleviate duplication of these responsibilities by identifying the “cognizant” agency. Unfortunately, this is not always the case and multiple agencies and / or multiple commands within an agency see fit to assert audit “rights” over a government contractor. This can be a particular problem when those agencies or commands take differing positions dependent upon what they consider to be most beneficial to the contract or funding for which they are responsible as opposed to what is the most correct. Administration and audit cognizance should then be easy to determine based upon this simple guidance included in FAR Part 42. However, who is cognizant if the contractor acts as a subcontractor and has no prime contracts directly with a government agency or if the “largest dollar amount of negotiated contracts” is with a prime contractor. The government does not have privity of contract in a prime / subcontractor relationship. As stated previously, the intent of the FAR at 42.002(a) is to “avoid duplicate audits, reviews, inspections, and examinations of contractor or subcontractors.” Accordingly, many contractors have experienced the issue of a requirement in a solicitation to have a “government approved” or “DCAA approved” accounting system. The agency that has released the solicitation refuses to request that DCAA perform a pre-award accounting system survey and DCAA refuses to perform such a survey at the request of a contractor (particularly if they have only subcontracts). The government has effectively made the prime contractor the cognizant agency. This is most likely appropriate when the government does not have privity of contract anyway. In many cases (e.g. incentive fee contracts), the government places responsibility for subcontract administrative oversight on the prime contract as well. Another area where we see this issue is when a subcontractor has auditable cost reimbursable contracts. The prime contractor has flowed down the clause at FAR 52.216-7 “Allowable Cost and Payment” but the subcontractor does not have any auditable contracts directly with the government. Again, the government therefore does not have any privity of contract. Who is responsible for performing the incurred cost audit? The experience of many government contractors has been different here than in the case of the accounting system surveys. Many DCAA offices are more than willing to perform incurred cost audits of subcontractors even if the government does not have privity of the contracts to which the audits apply. Additionally, recent experience has shown that the government and the courts will disallow subcontractor costs incurred by a prime if they have not been audited. DCAA’s typically does not have the resources to audit in a manner as timely as the prime may. However, getting DCAA (and therefore the cognizant contracting officer) to rely on an audit performed by a prime, or even an independent professional auditor may be difficult. The bottom line is that it is the responsibility of the contractor (prime and / or sub) to assure that if the government does not take the appropriate responsibility, the contractor should. In some cases, even if the government does accept the responsibility, it may be in the best interest of all concerned for the prime to garner that responsibility as well.
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Microsoft Dynamics NAV and Industry News for Government ContractorsMake Sure Your Firm's Holding the Bag of Cash at the End of the YearBy Carl Sweetnam, Black Ink Black Ink (Fairfax Station, VA) offers Dynamics NAV for Government Contractors from PVBS as a hosted application. Black Ink President Carl Sweetnam, a former government contractor CFO and senior consultant at the Goodman and Company accounting firm, frequently contributes to High-Growth Government Contractor News. He has extensive knowledge about the challenges high-growth government contractors face from an accounting and financial management perspective. It’s hard to imagine indirect cost rates as a bag of cash, but they very well could be. For many emerging high-growth government contractors, the question of who’s holding the bag is as imperative a planning mechanism as taxes. If the Federal Government is holding the bag, knowing how to get your hands on it becomes the question of the year. Specifically, it’s the question of the fiscal year. Here’s something critical to be aware of. Many emerging contractors have or have held cost reimbursable type contracts. These contracts reimburse the contractor allowable costs as described in FAR part 31, Cost Principles, plus some form of fee arrangement. Typically, indirect cost rates are incorporated into the contract in some form, or an agreement with the contractor’s cognizant audit authority has been reached to invoice pre-determined indirect cost rates. Emerging contractors usually have emerging costs that create an indirect cost rate at the end of a fiscal year that is higher than the pre-determined rate being invoiced. The dollar differential is known as under-applied costs (under invoiced indirect costs). If the variance is reverse and you’re holding the bag, nice job! Although you will have a recorded liability at the end of the year for over-applied (over invoiced), you’ve had use of the cash until a final indirect rate determination is made. It is the responsibility of the contracting authority to ensure billing rates are as close as possible to the final indirect cost rates anticipated for the contractor’s fiscal period, as adjusted for any unallowable costs (FAR 42.704). This provides the contractor with the opportunity to either reduce their liability to the Government (over-applied) or collect cash for the under-applied through normal invoicing processes. Of course planning is required to determine value and communication is necessary to obtain Contracting Officer determined billing rates. Now is the time to ensure your firm is in a position to benefit from this. Make sure it’s you who’s holding the bag! |
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