November 2018 - page 3

Back in the mid-70s, the Army began to realize that it was paying excessive prices for military construction projects in South Korea. In fact, many of these projects cost more than comparable construction projects would cost back in the States. Given that Korean labor at the time was earning $2 to $4 per day, something was obviously off balance. The Army CIC (Criminal Investigative Command) conducted an extensive investigation and found wide-spread collusion among contractors as well as Korean Government involvement in directing which contractor would win each bid. The solution at the time was to move from competitive bidding process to negotiated procurements complete with certified cost or pricing data and full pricing audits. It worked. Costs for construction projects fell significantly. Over the intervening years however contracting shifted back to competitive procurements. The Korean economy boomed and the U.S. Government’s was not as significant economic influence as it once was. There was presumption that contractors’ ethics had improved. The Army wanted to streamline its acquisition processes – it requires a lot more work to negotiate a contract based on certified cost or pricing data than it does to award based on competition. It didn’t take too many years for the shift from negotiated competitive procurements to become complete.

Source: PNWC’s Government Contracting Update: $236 Million Settlement in Bid-Rigging Scheme

DCAA’s (Defense Contract Audit Agency’s) policies and procedures for sampling low-risk incurred cost proposals, while certainly helping to reduce the Agency’s incurred cost backlog, has not been without its detractors in the contract administration community. There are anecdotal stories out there where contracting officers try to initiate their own reviews of incurred costs after receiving notification from DCAA that a particular contractor submission has been deemed low risk and should be relied upon to close contracts for that year. Contractors were understandably upset because of the apparent “double audit”. The problem became significant enough that the Defense Department amended its FAR Supplement (DFARS) to, in effect, tell contracting officers to knock off the second-guessing of audit results.

Source: PNWC’s Government Contracting Update: Double Jeopardy – Incurred Cost Audits