Accounting System, Cost And Accounting, DCAA Relations, Department of Defense News, Incurred Cost Proposals, Running Your Business

Subcontractor Bites Prime Contractor

June 14, 2013

This article appeared in the Albuquerque Journal  this morning: http://www.abqjournal.com/main/210568/news/contractor-fraud-at-n-m-tech-program.html

I dug a little deeper and this case contains important information for government contractors. I have posted a copy of the complaint. I downloaded from the US District Court’s PACER system although you will notice the cover sheet instructed that it not be posted. Go Figure, I will not.

I am taking this off the complaint and offer no opinion about the truth of the complaint. I am sure that even as the subcontractor settled they did not admit any wrongdoing.

Here are the critical points.

  1. The Department of Homeland Security awards a series of contracts to a college in New Mexico (Prime). These contracts were to develop and implement training for first responders arising out of the Oklahoma City bombing.
  2. The Prime contracts for roughly a third of the contract value with a subcontractor  (Sub)to provide numerous trainers to help with the training. The contract between the Prime and the Sub utilized a Times and Material format.
  3. Although the prime contract was issued by the Department of Homeland Security, the Sub’s cognizant agency was the Department of Defense.
  4. This meant that all of the labor rates for the contract were reviewed and approved by DOD, not DHS.
  5. The complaint specifically alleges DCMA, there is no mention of DCAA in the complaint although I am personally aware of an excellent DCAA auditor who worked on audits involving the Prime.
  6. It is critical to understand that DCMA approved labor rates for actual people working for the Sub full time and with fully loaded benefits.
  7. It is also critical to understand that the prime and possibly DHS had no access to this rate work other than to know the rates had been approved by DCMA.

What is alleged to have happened is the Sub billed the Prime for higher per hour rates that they actually paid the people doing the work. They allegedly billed the Prime for a theoretical Lead Instructor at $95 an hour when the work was actually done by someone else at $55 an hour. In addition it is alleged the lower paid worker was a temp and received no benefits.

A classic case of where the government’s left hand has no idea what their right hand is doing.

This is treated as an alleged defective pricing with the Sub making a net profit of 37% instead of the 7-10% bid.

Just remember, Fixed Price, Time & Materials, and especially Cost type contract the money is never yours until the government says so. Sometimes that can take several years.

I cannot help but wonder how they handled the Schedule K on their incurred cost proposal submissions.

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