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deemed inadequate, other conse-
quences may follow, including:
Inadequate Accounting System
Loss of potential awards for cost-type
Inadequate Purchasing System
Required consent to subcontract.
Inadequate Billing System
Removal of direct billing privileges.
Impact to Future Contract Awards
Contractors with approved business
systems should find themselves in a
stronger competitive position than
ever before. The Interim Rule defines
a set of criteria for which Contracting
Officers will evaluate contractors. The
administrative burden of assessing
and re-assessing business systems,
evaluating DCAA findings and con-
tractor responses, and the monitoring
and reconciliation of withholds only
makes it more likely that those con-
tractors with approved business sys-
tems will receive future awards. Why
would Contracting Officers award a
contract to a contractor with "signifi-
cant deficiencies" in their business
systems when they can award it to
someone without?
Contractor Considerations
While the script is still unwritten on the
application of the Rule by the govern-
ment and its auditors, it's safe to
assume that in a budget-conscious
government, we can expect an
increase in government audits and
scrutiny in the monitoring of this con-
tract clause. Contractors will have to
remain diligent in their efforts to ensure
they meet the expectations of our
nation's largest customer, whatever
those new rules may be. Common best
practices in the industry include:
Self-assessment of business sys-
tems The silver lining is that the audit
programs of the required "business
systems" are publicly available. The
playbook is there. Contractors can be
prepared for the types of findings audi-
tors may allege.
"Management Responses" to audit
findings Contracting Officers do not
have to agree with the findings of your
DCAA auditor. The more compelling
argument you make on any differences
in opinion with your auditor, the better
your chance of convincing the
Contracting Officer to elect not to
impose a withhold. Unfortunately, the
new rule eliminates much of the con-
text that previous audit reports provid-
ed to Contracting Officers. It is now the
responsibility of the contractor more
than ever to provide the necessary per-
spective on identified deficiencies and
the risks they present.
Ultimately, the Interim Rule has been
both a success and a burden. The con-
tracting community has succeeded in
effecting some changes to the rule that
better align the government's focus on
material risks. However, many obsta-
cles remain in a future still clouded with
questions surrounding the application
and interpretation of the Rule by
Contracting Officers and their auditors.
Comments for the Interim Rule closed
on July 18. Stay posted for the
issuance of the Final Rule, but, in the
"Interim," be prepared.
Ryan Koenitzer, CPA
is an independent con-
sultant in Southbury
with more than 10
years of experience in
government contract
cost accounting, pric-
ing, interpretation and application of
federal contract regulatory compliance
requirements, business system design
and implementation, and internal audit
services. He advises clients in the
aerospace, defense, architectural,
engineering, construction, transporta-
tion, and technology industries on a
wide range of financial and compliance
risks. Koenitzer earned his B.S. in
accounting from the University of
Massachusetts at Amherst.
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