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Accounting Impacts of NDAA 2018

Each year brings about new budgets and new National Defense Authorization Acts (NDAA). NDAAs address funding, strategic plans, and rules affecting the defense acquisition process. NDAA 2018 is no exception and here are the highlights regarding cost, price, and accounting.

The NDAA 2018 raises the thresholds for a number of procurement regulations reflecting a recognition that more onerous acquisition regulations should be limited to more costly procurements. The NDAA also reflects an emphasis on the use of commercial risk metrics when auditing contractors, and the use of non-government auditors to eliminate the backlog of pending incurred cost audits.

Section 803 adds 10 U.S.C. §2313b which requires DoD to:

  • comply with “commercially accepted standards of risk and materiality” in the performance of incurred cost audits
  • begin using private auditors “to perform a sufficient number” of such audits
  • not differentiate between private auditors and DCAA when considering audit results
  • utilize peer reviews by a commercial auditor of DCAA’s unqualified audit findings
  • notify a contractor within 60 days after receipt whether its ICP is “qualified.

The goals requiring the use of private auditors are (i) the elimination of DCAA’ss incurred cost audit backlog by October 1, 2020, and (ii) the completion of all incurred cost audits within one year or less from the date of receipt of a qualified incurred cost submission. Don’t be surprised if DCAA redefines what constitutes a “qualified incurred cost submission.” We also expect even more scrutiny in a subjective process.

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.

Section 805 increases the simplified acquisition threshold (SAT) to $250,000 from $100,000, and Section 806 increases the micro-purchase threshold to $10,000 from $3,000.

Section 811 increases to $2 million from $750,000 the threshold for the submission of cost or pricing data for prime contracts awarded after June 30, 2018. The threshold for modifications to those prime contracts, subcontracts awarded under those prime contracts, and modifications to those subcontracts also increases to $2 million. The new threshold will be subject to periodic adjustment to keep pace with inflation pursuant to 41 USC § 1908.

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.”

Section 820 modifies the definition of “subcontractor” to clarify that agreements for the purchase of commodity items that are not identified with a particular contract and that support contracts with the federal government and other parties are not “subcontracts” for purposes of government acquisition requirements. This is a welcome clarification that will likely exclude a number of agreements from flow-down and other subcontract requirements and allow for the acquisition of these materials under standard industry terms. We expect this change to reduce the reporting requirements and risk associated with CPSRs.

Perhaps the most important aspect of all these changes is the requirement for DoD to promulgate new regulations implementing the changes. The DAR Council must propose new rules, publish them in the Federal Register, solicit public feedback, and institute the final rule. Follow all of the DFARS cases here. Register here for Federal Register notifications.

If you have questions about these changes and your federal contract, please contact Robert@LeftBrainPro.com or call (614) 556-4415.

Robert Jones

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