DCAA will often assert that the ICE (Incurred Costs Electronically) and an ICP (Incurred Cost Proposal) are the same thing. They simply are not. This is true by regulation and by DCAA’s own guidance (Information for Contractors has an entire section acknowledging that they cannot require electronic submissions (p73)).
- DCAA created the Model ICE in the 90’s to provide an example to contractors on what DCAA thought a good incurred cost submission would look like.
- There is no requirement to use DCAA’s Model ICE, if there was, it would be an approved government form subject to GSA and OMB standards, to include the Paperwork Reduction Act.
- There is no requirement to submit an incurred cost proposal in Microsoft Excel. There is no requirement to submit an incurred cost proposal electronically.
- The government finally adopted a regulation that paralleled the general description of the ICE — FAR 52.216-7(d) – Allowable Cost and Payment. The final regulation did not adopt the requirements found in the DCAA Model ICE even though the Model preceded the regulation.
- The government can only reject a cost proposal based on adequacy”.
If you are a conscientious government employee and realize, for whatever reason, that there is not going to be a lot of audit work done in the foreseeable future, you might get a bit worried about simply accepting a contractor’s incurred cost proposal and recommending payment of a check to them on their rate variances. Honestly, taxpayers might thank you for that; but while this might provide aid and comfort to DCAA, it is not audit. These ‘questions’ follow none of the rules of audit or even, often, DCAA’s own written orders (“guidance”).
If you take the “A” is for Audit out of DCAA then you must rely on what little interaction you have with the contractor via the incurred cost proposal the contractor submits and certifies each year.
This is an extremely generous and positive view of why DCAA undertook what I am calling the “ICE Wars”.
There is no doubt that a standardized incurred cost proposal model would make DCAA’s work easier in the same manner that the IRS Form 1040 makes the work easier for the government.
Unfortunately, there is a major difference between the Model ICE and the IRS Form 1040, one of them is formally approved by the government regulators (Form 1040) and the other is not (DCAA Model ICE). As noted above, regulators rejected the ICE when adopting the regulations about submission.
One of the reasons the regulators rejected the ICE was its constant changing nature. Here are two examples, one benefits contractors and the other does not.
FAR 52.216-7(d) – Allowable Cost and Payment (2)(iii)(J) reads as follows:
(J) Subcontract information. Listing of subcontracts awarded to companies for which the contractor is the prime or upper-tier contractor (include prime and subcontract numbers; subcontract value and award type; amount claimed during the fiscal year; and the subcontractor name, address, and point of contract information).
A careful reading of the regulation could support the position that contractors are required to report the above information on all subcontractors to include those working on prime fixed price contracts and even commercial work.
This was the position many DCAA auditors took at the time the government adopted the regulation. They argued that the complete data was necessary in order to evaluate the contractor’s purchasing systems and subcontractor management. I even had one client with no government participation where DCAA demanded an audit of them as a subcontractor on a prime with government participation.
Over time, many DCAA auditors moved away from this position and now the Model ICE focuses the reporting on those contracts with government participation. The current ICE Model Manuals reads:
“Subcontract number, prime contractor number, subcontract point of contact and phone number, subcontract value, costs incurred in FY, and award type. The schedule provides identification of subcontracts awarded to companies where the contractor is the prime or upper-tier contractor, including inter-divisional effort. This information is required at the pricing action level (e.g. delivery order, CLIN) for all subcontract awards (e.g. cost-type, incentive contracts, T&M/LH, FFP, etc.) issued under flexibly-priced and IDIQ prime contracts.” (p27) (emphasis added).
A client and I actually panicked a couple of weeks ago when a DCAA supervisor took the original position. I could not argue with the auditor’s original interpretation of the regulation, but, fortunately, the auditor changed their mind before we could respond.
NOTE: Notice how DCAA got the regulation to match up with the Model ICE schedule titles. That was largely the extent of their success.
(iv) The following supplemental information is not required to determine if a proposal is adequate, but may be required during the audit process:
(A) Comparative analysis of indirect expense pools detailed by account to prior fiscal year and budgetary data.
(B) General Organizational information and Executive compensation for the five most highly compensated executives. See 31.205-6(p). Additional salary reference information is available at http://www.whitehouse.gov/omb/procurement_index_exec_comp/ .
Executive Compensation is defined by statute, but DCAA asserts the right to ‘improve’ on the statute by claiming auditing the costs under the reasonable and prudent regulation “31.201-3 Determining reasonableness”.
As DCAA continues to lose many of these cases concerning compensation before the appeal board, they appear to be looking for a magic bullet to help with this issue, mainly via the supplemental form B, formerly form T. This form continues to grow with each version of the Model ICE. The latest version adds numerous new data collection points to the previous versions (MODEL ICE 2.01g):
“Basis of Contractor’s Compensation: Below, please check the box next to the item or items which describe the contractor’s basis for the proposed compensation costs, i.e. how the compensation levels were established in accordance with any existing policies and procedures. Also, did the contractor consider whether the proposed compensation was reasonable in accordance with FAR 31.205-6(b)? If so, include any reasonableness analysis, including all assumptions, data relied upon, compensation surveys and/or any other data. Include any attachments (survey data, comp plan/policy, etc.) separately.
Market Pricing Data (Compensation Surveys)
Prior DCAA Audit of Compensation Reasonableness
Written Compensation Plan/Policy
3rd Party (Consultant) Compensation Analysis
Management Judgment (No written plan/policy)
Other — ________________________________________
Determined by Board of Directors
(1) Indicate if Job Descriptions are available: YES ___ NO ___
*Written description Other compensation:
*Breakdown of Other compensation by cost element: “
This new version of the form reminds me of Admiral Ackbar’s line from “Return of the Jedi” – It’s a trap!” (https://www.youtube.com/watch?v=4F4qzPbcFiA).
This potentially turns a monstrous one page form into a monstrous form with a thousand page attachment. Sort makes you wish they were getting these forms approved and following the Paperwork Reduction Act.
To Form or Nor to Form
I agree with the FAR Council, which when adopting the regulation promised contractors they would not be required to use the DCAA Model. In the adoption of the regulation, the FAR Council brought up the DCAA Model ICE five (5) times and each time rejected its adoption:
“Comments: Two respondents submitted comments in regard to formatting. One respondent states that DCAA’s insistence that data be converted into other formats (such as spreadsheets using DCAA’s ICE Model) is in direct contradiction of FAR 52.215-2(d)(2) that access to records “may not be construed to require the contractor or subcontractor to create or maintain any record that the contractor or Comments: Two respondents submitted comments in regard to formatting. One respondent states that DCAA’s insistence that data be converted into other formats (such as spreadsheets using DCAA’s ICE Model) is in direct contradiction of FAR 52.215-2(d)(2) that access to records “may not be construed to require the contractor or subcontractor to create or maintain any record that the contractor or subcontractor does not maintain in the ordinary course of business or pursuant to a provision of law.” The other respondent suggests that the proposed revision at FAR 42.705-1(b)(1) eliminates the suggestion in the current rule that contractors can use the DCAA model incurred cost rate proposal and supporting data for guidance on what constitutes an adequate final indirect cost rate proposal. According to the respondent, this proposed revision also refers the definition of adequacy to the revised clause at FAR 52.216-7(d)(2), which makes mandatory specific schedules and data requirements taken almost verbatim from the DCAA ICE Model.
Response: The information required from the contractor for an adequate indirect cost rate proposal is not new. No specific format is prescribed for the submission. This information should be readily available in the contractor’s books, records, and systems.”
Federal Register, Volume 76 Issue 104 (Tuesday, May 31, 2011)
Notice the wonderful reference to FAR 52.215-2(d)(2), but we all benefit if we follow the general outline of a universal submission as adopted by the FAR Council while ignoring the parts of the DCAA Model ICE that concern us or exceeds their regulatory authority.
This is especially true when we confuse Adequacy with Audit.
“Schedule I: :The Truth and Nothing but the Truth, at Least How I See it” https://dcaacompliance.wordpress.com/2016/03/11/schedule-ithe-truth-and-nothing-but-the-truth-at-least-how-i-see-it/
 See my previous article “Burden of Proof” at https://dcaacompliance.wordpress.com/2015/10/21/burden-of-proof/
FAR 52.216-7(d) – Allowable Cost and Payment
“2(i) The Contractor shall submit an adequate final indirect cost rate proposal to the Contracting Officer (or cognizant Federal agency official) and auditor within the 6-month period following the expiration of each of its fiscal years.”
The last decade proved largely unkind to DCAA as it received constant criticism from Congress, other government auditors (GAO, DOD OIG), other areas of Government (DOD, DOE, NASA, GSA, etc.) and the occasional contractor.
A great deal of the criticism, and two ACTS OF CONGRESS, focused on DCAA’s simple inability to complete audits and address contractor costs through timely audit of contractor’s incurred cost proposals (ICPs). An ICP is a contractor annual report accounting for the money spent and allocated to a government contract.
DCAA’s primary defenses are the increase in work due to almost two decades of war, a recent focus on more complex audits, and inadequate staffing.
Over the years I employed one simple breakdown to illustrate DCAA’s work efforts. According to DCAA’s own Report to Congress, DCAA employed 4,167 auditors. According to the same report, DCAA completed 3,581 audits in 2017. This works out to less than one audit per year per auditor (.86 audits per auditor). In the 2011 report (the oldest on DCAA’s website), the number of auditors was higher at 4,225 and the number of completed audits stood at 7,390 for a ratio of 1,75 audits per year per auditor.
Apparently 58 more auditors made a huge difference.
Skewing this analysis is the number of incurred cost proposals DCAA closes without audit. In 2107, DCAA closed 22.5% of their incurred cost proposal by audit (1,527 out of 6,786). What happened to the other 5,259 contractor ICPs? The government accepted the contractor’s proposed rates without audit.
Yes, the vast majority of work the AUDIT Agency does each year is not audit.
DCAA often justifies this lack of audit by comparing itself to the IRS and the IRS’s procedures. The IRS does not audit most taxpayers, so why should DCAA?
I do not agree with the comparison for several reasons. I believe such comparisons are like comparing oranges and Italian race cars.
One simple reason is that the IRS is in possession of enormous amounts of collateral data on taxpayers. A huge advantage not enjoyed by DCAA. The IRS receives a copy of your W2 from your employer, your interest income from your bank, even information on your health insurance. The collateral information for businesses is even larger to include payroll tax filings, SEC reports, and more.
In other words, when the IRS gambles on taxpayer cheating, they know a great deal more information then DCAA does when they gamble on contractors with taxpayer’s money.
I realize that the majority of contractors rose up and began dancing behind their desks at the idea that there is about a one-five chance of DCAA showing up to audit your incurred cost proposal.
While I do not wish to throw any contractor in front of the bus filled with DCAA auditors, I believe we are all better off with an active viable DCAA audit function. The friction of the audit process helps both contractors and the government. Contractors gain wisdom about compliance, the ability to make audits smoother and when to draw the line on ridiculous and even unlawful auditor requests, such as copies of employee’s birth certificates. The government gets practice at their job and, hopefully, learn not to make ridiculous and even unlawful requests.
A viable active DCAA audit effort also helps keep the government out of mischief. The decline of the audit function and the resulting backlog of incurred cost proposals reaching monstrous numbers, has resulted in some changes in DCAA methods that I will categorize as mischief: 1) DCAA expanding their ‘model’ (in their minds) incurred cost electronically and; 2) DCAA confusing adequacy and audit.
NEXT – “Good Intentions and an Honest Effort to Avoid Work”.
DCAA Director Bales’ testimony before Congress on Apr 6, 2017 (page r) https://docs.house.gov/meetings/AS/AS06/20170406/105777/HHRG-115-AS06-Wstate-BalesA-20170406.pdf
 I received my second request from different audit offices for contractor’s home addresses this morning. The previous request was a couple of years ago.
Most of what we address in policies and procedures are common sense. What little that is not is government “sense”. I bet you wondered why I included hand grenades and a corvette. Let me tell you a tale from my youth.
I served in the 82nd Airborne division as an infantry soldier during the cold war. One of the primary responsibilities of the 82nd (along with the 101st and the 24th) was the ability to send a battalion size force anywhere in the world within two hours. Since the 82nd was burdened with parachutes and not helicopters (101st was not airborne when I served) or armored vehicles (24th), the primary burden fell on the 82nd.
The division was divided into 9 units of readiness status called “DRF” for Defense Readiness Force”. The highest status was DRF 1 which meant that the battalion needed to be able to assemble within two hours. For us, it meant no leave and we had to be within a half hour of the base at any time, ready to gear up and deploy.
Of course, Deployments happened for real and deployments happened for training, and God Bless the US Army, someone was always trying to figure out a way to improve the deployment process.
One of the slowdowns was issuing out ammo to the DRF 1 force. For example, as a grenadier, I carried seven 30 round magazines of 5.56 for my M203, about twenty 40mm grenades for the launcher, a belt of 7.62 for one of the platoon’s M60 machine guns, a couple of hand grenades, and other odds and ends in addition to food, water and my regular gear. I also carried half of a M47 anti-tank missile.
Multiple this load by 800 other guys with similar loads then add odds and ends such as mortar rounds, .50 caliber rounds, TOW rounds, etc.… and it adds up to several tons for us to carry and deploy. In addition, the force must deploy with adequate reserves, at least two or three times the amount we carried. two or three times that amount in reserve.
Half of a Brilliant Idea
This bottleneck led to half of a brilliant idea by someone in the chain of command. Why not pre-issue the ammo to the DRF 1 force? The immediate challenge this presented was how to secure the tons of deadly material. There really was not a warehouse within a DRF 1 unit for this purpose.
Well, all the units were across the street from a small area of woods fondly referred to as “Area J”. The battalions utilized Area J for quick training, physical training, and harassing new members of the division. “Smith, would you go and ask Top for the keys to Area J?”.
The idea some unknown person came up with was to issue the ammo and take the ammo out to Area J. Security? Put three strands of concertina wire around it and let put a squad to guard it. This is what they did the next time my battalion went on DRF 1.
I do not remember being told that we were going to have guard duty on top of everything else associated with DRF 1 status, but my squad came up on rotation and we got in a deuce and a half and deployed into area J and the ammo dump.
We were a tight squad and worked well together, my squad leader was busy with something else when we arrived and asked me to talk to the sergeant of the squad we were reliving.
Looking at the large number of crates around us, I asked the sergeant for the inventory form. He replied, “What inventory form?”
“What Inventory Form?”
Apparently, no one else shared my shock and I am sure the rest of the squad got tired of my complaining about this for the rest of the night. Yes, they agreed with me that it was a stupid idea, but bureaucracies, and the Army was often a bureaucracy with weapons, was full of stupid ideas.
We finished our guard duty, turned the ammo over to the next squad, and went back to the barracks. We heard nothing more about inventory for several months.
The Art of the Deal
The story we heard later was that a guy from one of the other companies in our battalion attempted to buy a car from a local dealership and failed to close the deal. He later decided to express his anger by returning to the dealership at night and chucking a hand grenade into it. The only injury, as we heard about was to a corvette.
What our young soldier did not realize, is the spoon of a hand grenade contains identifying numbers that allowed law enforcement to track the hand grenade back to one of the boxes issued to our battalion during the DRF 1 readiness period.
The Army immediately locked our battalion down, bringing in all the guys who lived off post and putting them on the floors of our barracks. All the cars were searched, including mine, and no one was going anywhere until the hand grenades were located or at least accounted for.
It took several days for the culprits to confess (sometimes peer pressure is a wonderful thing), and the story was that they stole at least one CRATE of hand grenades.
I assume they were courtmartialed, or if the Army wanted to keep it quiet – an Article 15. I was just happy to return to a normal life.
Maybe it was asking too much for infantry grunts to think about inventory, although in my young mind it was the word “accountability”. I often wondered how the ammo got checked back in without an inventory, or just who the hell signed for it.
Accountability is a critical concept is government and business and this is one of the stories that led to my development of Single Point of Responsibility (SPR) as an essential management tool.
Government personnel and contractors should always think in terms of accountability and responsibility in their actions. It does not matter if it is hand grenades, dollars, or even human beings you are responsible for. Developing systems of accountability is simply common sense.
One of the consequences of the new law requiring DCAA to accept of reject a contractor’s incurred cost submission within sixty (60) days is a possible DCAA conclusion that it must reject the proposal instead of simply calling the contractor and asking a few questions. The loop of question response, question response can eat up the clock pretty quick, especially when about 90% of the proposals are submitted on the sane day.
Some examples I am seeing:
a. Did you really mean that the contract reported on Schedule O is ready to close.
b. Are you missing any contracts on Schedule H, we think you might be.
c. We see that you got labor reconciled on Schedule L but we are not sure how you did it. We will go ahead and reject and let you explain it with the resubmission.
Please feel free to share your examples.
Let DCAA speak for itself…..
This memorandum is being issued to confirm that Agency policy will be revised to require incurred cost submissions to be reviewed for adequacy within 60 days of receipt, as required by the 2018 NDAA enacted on December 12, 2017. The DCAA CAM will be updated to reflect this requirement. Therefore, for any incurred cost submission received since December 12, 2017, the audit team must complete the adequacy review and notify the contractor of the results of the adequacy review within 60 days.
Another important aspect of the NDAA requirement is completing incurred cost assignments within 12 months of receiving a qualified submission after the date of enactment (December 12, 2017).
But lessons to be learned for contrtactors….
A DCAA auditor recently contacted a client with a concern about their incurred cost submission for 2014, The auditor asked the following (contract information redacted):
1) In comparing on Schedule I to Schedule H, Schedule I, cell G30 ($38,287) and Schedule H, cell P36 ($34,579) are both values for FYE 2014 Costs, Subcontract XXXXXXXXXX. What accounts for the difference between these two numbers?”
If you could not guess, this was the T&M section of the Schedule I. This section of the Schedule I records the government’s costs while the section referred to in the Schedule H records the contractor’s costs. Under any reasonable circumstances they should not tie. A careful reading of DCAA’s own adequacy checklist confirms this (link to Schedule K not H).
Answering this type of question is a conversation I try to have over the telephone or in person. I avoid putting our response in writing due to the fear of focusing the adequacy discussion on the government and not the contractor.
I telephoned the auditor and she immediately agreed with my response but insisted that I reply in writing to provide a record of the response. This is when I guessed that the question originated with her supervisor and not herself. Apparently, a supervisor who survived the DCAA Internal 2008 Adequacy Crisis and is now a supervisor.
Here are some of the requirements from the Department of Homeland Security’s latest SBIR RFPs
“Additional deliverables in this phase include the following (templates to be provided later by the federal Program Manager):
- Monthly Status Reports, including master schedule for Phase II activities, quad chart, table showing each task description, percentage completed, targeted completion date, revised dates (if applies), etc.
- Monthly Financial Status Report showing reporting month, cumulative costs, allocated financial data for direct labor categories, labor hours, labor rates, consultants/subcontractors cost, travel, materials purchased, etc.
- Monthly status calls “
I recently participated in a Navy SBIR conference where one of the other panelists encouraged contractors not to worry about the budgets on their SBIR Phase One. It appears that may no longer be the case.
I had a dim memory of the DOD program staff asking for similar reports years ago. I went to look and found one form so old that I cringed at the title: “Fund Man Hours Expenditures”. I imagine an updated version of this is in many small business contractor’s futures.
All of this underlines the importance of doing it right from the start. Contractors starting out should start out with a cost accounting system that will meet their needs and the government requirements.