CHAPTER 10
Contract Administration
Individuals involved in the administration of contracts need to have an awareness of potential issues. A basic understanding of problems that may arise will help limit the impact on contractor operations.
RESPONSIBILITY FOR CONTRACT ADMINISTRATION AND AUDITS
The administration of government contracts may either be carried out by the contracting officer (CO) responsible for contract award or be delegated to an administrative contracting officer (ACO). In agencies other than DOD, contract administration generally is not delegated. Within DOD, most contracts are assigned to an ACO who is with the Defense Logistics Agency (DLA) within the organizational unit identified as the Defense Contract Management Agency (DCMA).
The DCMA maintains and distributes the Federal Directory of Contract Administration Services Components. This directory lists the names and telephone numbers of those DCMA and other agency offices that offer contract administration services within designated geographic areas and at specified contractor plants. The directory is available at www.dcma.mil/. Contractors often need to know who their ACO is to be able to respond fully to RFPs.
Contract Administration Duties
Government contract administration functions encompass a long list of duties. In any one circumstance, all or some of these functions may be delegated to an ACO. Not all functions are applicable for each contract.
Functions include reviewing the contractor’s compensation structure, reviewing the contractor’s insurance plans, conducting postaward orientation conferences, reviewing and evaluating contractors’ proposals, negotiating forward-pricing rate agreements, negotiating advance agreements applicable to treatment of costs, and determining the allowability of costs.
Duties also include issuing Notices of Intent to Disallow or Not Recognize Costs, establishing final indirect cost rates and interim billing rates, resolving issues in controversy, preparing findings of fact, and issuing decisions under the disputes clause. In connection with the CAS, duties include determining the adequacy of a contractor’s disclosure statements, determining whether disclosure statements are in compliance with the CAS and FAR Part 31, determining a contractor’s compliance with the CAS and disclosure statements, negotiating price adjustments, and executing supplemental agreements under the CAS clauses.
Other functions include reviewing and approving or disapproving the contractor’s requests for payments under the progress payments or performance-based payments clauses, managing special bank accounts, ensuring timely notification by the contractor of any anticipated overrun or underrun of the estimated cost under cost-reimbursement contracts, monitoring the contractor’s financial condition and advising the contracting officer when that financial condition jeopardizes contract performance, analyzing the quarterly limitation on payments statements, and recovering overpayments from the contractor.
Additional responsibilities include issuing tax exemption forms, ensuring that duty-free entry certificates are processed and executed, negotiating and executing contractual documents for settlement of partial and complete contract terminations for convenience, processing and executing novation and change of name agreements, performing property administration, and performing necessary screening, redistribution, and disposal of contractor inventory.
Contract administration also includes providing production support, conducting surveillance, and performing status reporting, including the timely reporting of potential and actual slippages in contract delivery schedules. In addition, responsibilities include: conducting preaward surveys; ensuring contractor compliance with contractual quality assurance requirements; ensuring contractor compliance with contractual safety requirements; performing engineering surveillance to assess compliance with contractual terms for schedule, cost, and technical performance in the areas of design, development, and production; and evaluating for adequacy and performing surveillance of contractor engineering efforts and management systems that relate to design, development, production, engineering changes, subcontractors, tests, management of engineering resources, reliability and maintainability, data control systems, configuration management, and independent research and development.
Contract administration also involves: performing engineering analyses of contractor cost proposals; reviewing engineering change proposals for proper classification; monitoring a contractor’s value engineering program; reviewing the contractor’s purchasing system; consenting to the placement of subcontracts; reviewing small, small-disadvantaged, and women-owned small business master subcontracting plans; ensuring a contractor’s compliance with small, small-disadvantaged, and women-owned small business subcontracting plans; and determining that the contractor has a drug-free workplace program and a drug-free awareness program.
Contract Audits
Government contractors (other than educational institutions and nonprofit organizations) are normally audited by what is known as the “cognizant federal agency,” which is generally the agency with the largest dollar amount of negotiated contracts. For educational institutions and nonprofit organizations, the cognizant federal agency is determined in accordance with OMB Circular A-21, Cost Principles for Educational Institutions, and OMB Circular A-122, Cost Principles for Nonprofit Organizations. Once a federal agency assumes cognizance for a contractor, it is expected that the agency will remain cognizant for at least five years to ensure continuity and ease of administration.
The Department of Defense contract audit organization is the Defense Contract Audit Agency (DCAA), which is by far the most significant contract audit agency in the federal government. Other departments and agencies have three sources of audit services when they have audit cognizance. First, they may contract for audit services with DCAA. NASA relies on DCAA for essentially all its contract audits. Second, the agency may contract with a public accounting firm for these services. DOE and the Environmental Protection Agency (EPA) often use this approach. Third, the agency may have a limited staff of contract auditors within the Office of the Inspector General (IG) or other organization. EPA has some contract auditors assigned to the IG office. The Department of Health and Human Services has an organization outside the IG’s office to conduct certain indirect cost audits.
A contract auditor is responsible for submitting information and advice to a contracting office based on analysis of the contractor’s financial and accounting records or other data related to the contractor’s incurred and estimated costs. An auditor also reviews the financial and accounting aspects of the contractor’s cost control systems and performs other analyses and reviews that require access to the contractor’s financial and accounting records supporting proposed and incurred costs.
Contracting officers request audit services directly from the responsible audit agency designated in the Directory of Federal Contract Audit Offices. DCAA maintains and distributes this directory, which identifies cognizant audit offices and the contractors over which they have cognizance. The directory is also available at the DCAA website: www.dcaa.mil/. The responsible audit agency may decline requests for services if its resources are inadequate to accomplish the required tasks.
FINANCIAL ASPECTS
The following sections address some of the most common issues encountered in contract administration. Contract payments are significant because of their impact on the financial condition of the company. If a company has cost-reimbursement contracts, it must be aware of its responsibilities for submitting an annual indirect cost rate proposal. Contractors should also be aware of cost-sharing arrangements and indirect cost rate ceilings, and how these affect profits. Some contractors may be requested to propose forward-pricing rate agreements. Another financial aspect relates to closing out cost-reimbursement contracts. Finally, this section addresses the issue of government retroactive disallowance of incurred costs.
Contract Payments
The federal government uses several methods of contract payment. The simplest is payment on delivered goods or services under firm-fixed-price contracts and labor under time-and-materials and labor-hour contracts. The contractor delivers the goods or services at an agreed-to price and payment is made.
However, many government contracts are not completed for a significant time period. Thus, the government offers interim payments under the two basic contract types—cost-reimbursement and fixed-price. For cost-reimbursement contracts, interim payments are considered reimbursement of costs rather than contract financing. This distinction is important for provisions of the Prompt Payment Act, which applies only to payments for completed goods and services under fixed-price contracts (i.e., not to interim progress payments).
Provisional or Interim Billing Rates
The contracting officer or auditor responsible for establishing the final indirect cost rates is also responsible for determining the billing rates applicable to both cost-reimbursement and fixed-price contracts. The contracting officer or auditor establishes billing rates on the basis of information obtained from recent reviews, previous rate audits or experience, or budgetary data. Billing rates should be set as close as possible to the final indirect cost rates anticipated for the contractor’s fiscal period, as adjusted for any unallowable costs. The most important data for establishing these rates are the expected cost levels for the period covered by the rates. Unfortunately, many government auditors hesitate to accept estimates and rely solely on the rate for the most recent year.
Once established, billing rates may be revised—either prospectively or retroactively—by mutual agreement to prevent substantial overpayment or underpayment. When agreement cannot be reached, the contracting officer may unilaterally determine the billing rates. A contractor should monitor rates during the year and request revisions wherever appropriate. Both overbilling and underbilling should be avoided. Overbilling means that the contractor will have to return substantial funds to the government. Underbilling means that the contractor does not have full use of the funds it has earned.
The elements of indirect cost and the base or bases used in computing billing rates should not be considered determinative of the indirect costs to be distributed or of the bases of distribution to be used in the final settlement. In other words, the govern-ment’s approval of indirect cost rates does not necessarily commit the government to accept, for final rate purposes, the cost allocations used in preparing those rates.
When a contractor submits a certified final indirect cost rate proposal for the conclusion of a year, the contractor and the government may mutually agree to revise billing rates to reflect the proposed indirect cost rates until that proposal has been audited and settled. This approach has become more common in recent years. Previously, no adjustments were permitted until a government final audit had been performed. However, problems resulted because funds were often no longer available when the final audit was completed years later.
Final Indirect Cost Rates
Final indirect cost rates are established on the basis of either contracting officer determination or auditor determination. Within 120 days after settlement of the final indirect cost rates, a contractor should submit a completion invoice or voucher reflecting the settled amounts and rates on all contracts physically completed in the year covered by the proposal. As of late 2010 the submission has no FAR-mandated format. However, the FAR does suggest a format such as the DCAA-developed ICE (indirect cost electronically) Excel workbook format. While this format is not mandatory, some of the schedules are advisable. Certain schedules are redundant and reflect obsolete FAR requirements; these should not be submitted. A FAR revision is being considered to make this format a requirement.
Figure 31 (see page 211) contains a “cleaned up” version of the DCAA ICE. The color-coded links have been eliminated, links have been minimized, redundant and obsolete schedules have been removed, and proper borders have been added.
Contracting Officer Determination
A contracting officer determination basis is used for business units of a multidivisional corporation under the cognizance of a corporate ACO, with that officer responsible for the determination. Negotiations are conducted on a coordinated or centralized basis, depending on the degree of centralization within the contractor’s organization. Contracting officer determination is also used for business units that are not under the cognizance of a corporate ACO, but that have a resident ACO. (An ACO is considered resident if at least 75 percent of his or her time is devoted to a single contractor.)
In accordance with the Allowable Cost and Payment clause at FAR 52.216-7 or 52.216-13, the contractor submits a final indirect cost rate proposal to the contracting officer and to the cognizant auditor. A proposal should be submitted within six months following the expiration of the contractor’s fiscal year. Extensions are commonly granted. Audits are often not initiated within one year of submission. (Although a contractor must meet the six-month limit, the audits are typically conducted later.)
The required content of the proposal and supporting data will vary depending on such factors as business type, size, and accounting system capabilities. DCAA has prepared a model indirect cost submission that covers all required information and additional data that are not required but that facilitate an audit. DCAA also has prepared spreadsheets in Excel workbook format for submission of the information. The Model Incurred Cost Proposal is published in Chapter 5 of DCAA Pamphlet (DCAAP) No. 7641.90, Information for Contractors. The model is available at www.dcaa.mil/.
The auditor submits an advisory audit report to the contracting officer identifying any relevant advance agreements or restrictive terms of specific contracts. The contracting officer heads the government negotiating team, which includes the cognizant auditor and technical or functional personnel as required. The government negotiating team develops a negotiation position. The contracting officer may not resolve any questioned costs until obtaining: (1) adequate documentation on the costs; and (2) the contract auditor’s opinion on the allowability of the costs.
The cognizant contracting officer: conducts negotiations; prepares a written indirect cost rate agreement; prepares a negotiation memorandum covering the disposition of significant matters in the advisory audit report; reconciles all costs questioned, identifying items and amounts allowed or disallowed in the final settlement as well as the disposition of period costing or allocability issues; presents reasons why any of the auditor’s recommendations were not followed; and identifies cost or pricing data submitted during the negotiations and relied on in reaching a settlement. The contracting officer also notifies the contractor of the individual costs that were considered unallowable and the respective amounts of the disallowance.
Auditor Determination Procedure
The cognizant government auditor establishes final indirect cost rates for business units not established by the contracting officer. The contractor submits the indirect cost rate proposal to the contracting officer and auditor. The auditor audits the proposal and seeks agreement on indirect costs rates with the contractor. The auditor then prepares an indirect cost rate agreement, which is signed by the contractor and the auditor. If agreement cannot be reached, the auditor forwards the audit report to the contracting officer, who will then resolve the disagreement.
Cost-Sharing Rates and Ceilings on Indirect Cost Rates
Cost-sharing arrangements may call for the contractor to participate in the costs of the contract by accepting indirect cost rates lower than the anticipated actual rates. In such cases, a negotiated indirect cost rate ceiling may be incorporated into the contract. These techniques are sometimes used for cost-sharing under research and development contracts where it is prudent to provide a final indirect cost rate ceiling in a contract. Examples of such circumstances are when the proposed contractor: (1) is a new or recently reorganized company, and thus has no past or recent record of incurred indirect costs; (2) has a recent record of a rapidly increasing indirect cost rate due to a declining volume of sales without a commensurate decline in indirect expenses; or (3) seeks to enhance its competitive position in a particular circumstance by basing its proposal on indirect cost rates lower than those that may reasonably be expected to occur during contract performance, thereby causing a cost overrun.
Forward-Pricing Rate Agreements
Forward-pricing rates are agreements to use specified indirect cost rates in pricing contract modifications and small dollar contracts. Agreements are generally used only for high dollar-value contractors. Negotiation of forward-pricing rate agreements (FPRAs) may be requested by the contracting officer or the contractor, or initiated by the ACO. In determining whether or not to establish such an agreement, the ACO should consider whether the benefits to be derived from the agreement are commensurate with the effort of establishing and monitoring it. Normally, FPRAs should be negotiated only with contractors that have a significant volume of government contract proposals. The cognizant contract administration agency determines whether an FPRA will be established.
An ACO obtains a contractor’s forward-pricing rate proposal, which requires cost or pricing data that are accurate, complete, and current as of the date of submission. Upon completing negotiations, the ACO prepares a price negotiation memorandum (PNM) and forwards copies of the PNM and the FPRA to the cognizant auditor and to all contracting offices that are known to be affected by the FPRA. A Certificate of Current Cost or Pricing Data is not required at this time.
The FPRA provides specific terms and conditions covering expiration, application, and data requirements for systematic monitoring to ensure the validity of the rates. The agreement provides for cancellation at the option of either party and requires the contractor to submit to the ACO and to the cognizant contract auditor any significant change in cost or pricing data.
When an FPRA is invalid, the contractor should submit and negotiate a new proposal to reflect the changed conditions. If an FPRA has not been established or has been invalidated, the ACO will issue a forward-pricing rate recommendation (FPRR) to buying activities, with documentation to assist negotiators. In the absence of an FPRA or FPRR, the ACO must include support for the rates used. The contractor and the ACO may negotiate continuous updates to the FPRA.
DCAA auditors often encourage even the smallest contractors to seek forward-pricing rate agreements. Small contractors are not expected to have these agreements per the FAR. The forward-pricing rate agreement process has become somewhat convoluted in practice. When DCAA makes recommendations to a contracting officer for such rates, if the contracting officer (the FAR-designated official for setting such rates) deviates significantly from the DCAA recommended rates, DCAA will not accept the contracting officer-approved rates in its audit recommendations. Instead, DCAA will use its own recommended rates.
Quick-Closeout Procedure
Normally, flexibly priced contracts are closed after completion of the final indirect cost rate audit. This sometimes occurs several years after completion of the contract. As an alternative, a quick-closeout procedure may be used. The contracting officer may negotiate the settlement of indirect costs for a specific contract in advance of the determination of final indirect cost rates, if:
The contract is physically complete.
The amount of unsettled indirect cost to be allocated to the contract is relatively insignificant. (Indirect cost amounts will be considered insignificant when the total unsettled indirect cost to be allocated to any one contract does not exceed $1,000,000 and the cumulative unsettled indirect costs to be allocated to one or more contracts in a single fiscal year do not exceed 15 percent of the estimated, total unsettled indirect costs allocable to cost-type contracts for that fiscal year.)
Agreement can be reached on a reasonable estimate of allocable dollars.
Determinations of final indirect costs under the quick-closeout procedure provided for by the Allowable Cost and Payment clause at FAR 52.216-7 or 52.216-13 are final for the contract covered by the agreement, and no adjustment is made to other contracts for over- or underrecoveries of costs allocated or allocable to that contract. Indirect cost rates used in the quick closeout of a contract are not considered a binding precedent when establishing the final indirect cost rates for other contracts.
Disallowing Costs After Incurrence
Cost-reimbursement contracts, the cost-reimbursement portion of fixed-price contracts, letter contracts that provide for reimbursement of costs, and time-and-materials and labor-hour contracts provide for disallowing costs during the course of performance after the costs have been incurred.
The contract auditor may be authorized to receive reimbursement vouchers directly from contractors, approve for payment those vouchers found acceptable, and suspend payment of questionable costs. The auditor forwards approved vouchers for payment to the cognizant contracting, finance, or disbursing officer, as appropriate under the agency’s procedures.
If the examination of a voucher raises a question regarding the allowability of a cost, the auditor may issue a notice of contract costs suspended and/or disapproved simultaneously to the contractor and the disbursing officer for deduction from current payments with respect to costs claimed but not considered reimbursable. If the contractor disagrees with the deduction, the contractor may: (1) submit a written request to the contracting officer to consider whether the unreimbursed costs should be paid; and/or (2) file a claim under the disputes clause.
PERFORMANCE ASPECTS
Events that occur during contract performance can create significant contract administration problems. One such event is a government suspension or delay of work. Because past performance is more important than ever in obtaining new contract awards, it is essential that that contractor handle such an occurrence properly. The government may also modify a contract—sometimes unilaterally. Subcontracting and government property are two additional contract administrative matters that should be considered. Finally, the government may terminate a contract for its convenience at any time.
Suspension of Work, Stop-Work Orders, and Government Delay of Work
A contracting officer may issue a suspension of work under a construction or architect-engineer contract. If the suspension is unreasonable, the contractor may submit a written claim for increases in the cost of performance, excluding profit. Stop-work orders may be used, when appropriate, in any negotiated fixed-price or cost-reimbursement supply, research and development, or service contract if work stoppage is required for reasons such as advancement in the state-of-the-art, production or engineering breakthroughs, or realignment of programs.
Generally, the contracting officer will issue a stop-work order if he or she determines that work should be suspended pending a decision by the government. Issuance of a stop-work order must be approved at a level higher than the contracting officer. Stop-work orders are not to be used in place of a termination notice after a decision to terminate has been made.
Stop-work orders include a description of the work to be suspended, instructions concerning the contractor’s issuance of further orders for materials or services, guidance to the contractor on action to be taken on any subcontracts, and other suggestions to the contractor for minimizing costs. Generally, after issuing a stop-work order, the contracting officer should discuss the order with the contractor and modify it if necessary. As soon as feasible after a stop-work order is issued, but before its expiration, the contracting officer should take appropriate action to terminate the contract, cancel the stop-work order, or extend the period of the stop-work order if it is necessary and if the contractor is in agreement with an extension.
The clause at FAR 52.242-17, Government Delay of Work, provides for the administrative settlement of contractor claims that arise from delays and interruptions in the contract work caused by the acts, or failures to act, of the contracting officer. This clause is not applicable if the contract otherwise specifically provides for an equitable adjustment because of the delay or interruption (i.e., when the changes clause is applicable).
The clause does not authorize the contracting officer to order a suspension, delay, or interruption of the contract work. If the contracting officer has notice of an unordered delay or interruption covered by the clause, the contracting officer must act to end the delay or take other appropriate action as soon as practicable.
Past Performance Evaluations
Agency procedures for the past performance evaluation generally provide for input from the technical office, contracting office, and, where appropriate, end users of the product or service. Agency evaluations of contractor performance are to be provided to the contractor as soon as practicable after completion of the evaluation. Contractors are given a minimum of 30 days to submit comments, rebut statements, or provide additional information. Agencies will provide for review at a level above the contracting officer to consider disagreements between the parties regarding the evaluation.
The ultimate conclusion on the performance evaluation is a decision of the contracting agency. These evaluations may be used to support future award decisions and are designated “source selection information.” For the period during which the information may be used to provide source selection information, the completed evaluation may not be released to other than government personnel and the contractor whose performance is being evaluated. Disclosure of such information could cause harm both to the commercial interest of the government and to the competitive position of the contractor being evaluated, as well as impede the efficiency of government operations. Evaluations used in determining award or incentive fee payments may also be used. A copy of the annual or final past performance evaluation should be provided to the contractor as soon as it is finalized.
Departments and agencies share past performance information with other departments and agencies when requested to -support future award decisions. The information may be provided through interview and/or by sending the evaluation and comment documents to the requesting source selection official. Past performance information systems are intended to include appropriate management and technical controls to ensure that only authorized personnel have access to the data. The past performance information is not retained to provide source selection information for longer than three years following completion of contract performance.
Contract Modifications
Contract modifications can be either bilateral or unilateral. A bilateral modification (supplemental agreement) is a contract modification that is signed by the contractor and the contracting officer. Bilateral modifications are used to make negotiated equitable adjustments resulting from the issuance of a change order; they definitize letter contracts and reflect other agreements of the parties modifying the terms of contracts.
A unilateral modification is a contract modification that is signed only by the contracting officer. Unilateral modifications are used to make administrative changes, issue change orders, make changes authorized by clauses other than a changes clause (e.g., property clause, options clause, suspension of work clause), and issue termination notices.
When a contractor considers that the government has effected or may effect a change in the contract that has not been identified as such in writing and signed by the contracting officer, the contractor should notify the government in writing as soon as possible. This will permit the government to evaluate the alleged change and confirm that it is in fact a change, direct the mode of further performance and plan for its funding, countermand the alleged change, or notify the contractor that no change is considered to have occurred.
Constructive changes (i.e., situations where government actions cause a change in contract performance) are a key element for profitable contract performance. If such changes increase the cost of contract performance, the contractor should request an increase in the contract price. Contractors often neglect to seek price increases for various reasons (e.g., the cost increase is minor, the customer might not appreciate a price adjustment request). However, contractors are well-advised to accumulate the additional cost of performance and request a price adjustment where appropriate.
Subcontracting
If the contractor has an approved purchasing system, consent is required for subcontracts specifically identified by the contracting officer in the subcontracts clause of the contract. The contracting officer may require consent to subcontract if the contracting officer has determined that an individual consent action is required to protect the government adequately because of the subcontract type, complexity, or value, or because the subcontract needs special surveillance. These can be subcontracts for critical systems, subsystems, components, or services. Subcontracts may be identified by subcontract number or by class of items (e.g., subcontracts for engines on a prime contract for airframes).
If the contractor does not have an approved purchasing system, consent to subcontract is required for cost-reimbursement, time-and-materials, labor-hour, or letter contracts, as well as for unpriced actions (including unpriced modifications and unpriced delivery orders) under fixed-price contracts that exceed the simplified acquisition threshold:
For DOD, the Coast Guard, and NASA, the greater of the simplified acquisition threshold or 5 percent of the total estimated cost of the contract
For civilian agencies other than the Coast Guard and NASA, either the simplified acquisition threshold or 5 percent of the total estimated cost of the contract.
Consent also may be required for subcontracts under prime contracts for architect-engineer services.
Government Property
Contractors are responsible and liable for government property in their possession, unless otherwise provided by the contract. Generally, contracts do not hold contractors liable for loss of or damage to government property when the property is provided under negotiated fixed-price contracts, cost-reimbursement contracts, facilities contracts, or service contracts performed on a government installation.
A contract may require the contractor to assume greater liability for loss of or damage to government property. For example, this may be the case when the contractor is using government property primarily for commercial work rather than for government work. Contractor records of government property established and maintained under the terms of the contract are the government’s official property records.
Issues relating to government property arise when a contractor purchases materials, equipment, supplies, etc., for a government cost-reimbursement contract. The property must be used only for that contract unless permission is obtained from the contracting officer. Property tagging, storage, and records must be properly maintained for these items.
Earned Value Management Systems
Earned value management systems (EVMS) are basically budgeting systems that focus on tracking performance to budgets. They feature estimates to complete for purposes of ensuring early notification of potential program overruns. These requirements are incorporated in contracts on a case-by-case basis.
Termination for Convenience
Unique to government contracts is the ability of the government to terminate a contract for its own “convenience.” In a commercial environment, a buyer generally cannot unilaterally cancel a contract without committing a breach of contract. If the government terminates a contract for convenience, the government will reimburse a contractor for costs incurred plus a reasonable profit for work performed.
A contractor must submit a settlement proposal to receive this reimbursement. Whenever a contract is terminated, the contractor should cease all work on the contract. Normally, a settlement proposal is required within one year of the termination notice. When a termination notice is received, a contractor should begin to accumulate the costs of the termination administration. These settlement costs are reimbursable as part of the settlement proposal.
Two basic types of termination settlements are used: (1) the inventory method; and (2) the total cost method. Cost-reimbursement and certain fixed-price contracts are settled using the total cost method. Under the inventory method, the contractor is paid the contractual price for completed/accepted items and is reimbursed on a total cost basis for the remaining contract items. The inventory method can be used only when unit prices and costs are available and some items have been completed and accepted by the government. If a contract would have resulted in a loss, the government may not permit recovery of any profit on the termination settlement. In fact, a loss factor will be applied in lieu of profit for the work performed.
Ethics
In late 2008, the FAR was revised to expand the requirements for (1) a contractor code of business ethics and conduct, (2) an internal control system, and (3) disclosure of significant overpayments, certain criminal violations, or False Claims Act (FCA) violations. Contractors must establish and maintain internal controls to detect and prevent improper conduct in connection with a government contract or subcontract. Whenever a contractor or subcontractor has “credible evidence” of an FCA violation or a federal criminal violation involving fraud, conflict of interest, bribery, or a gratuity, that evidence must be disclosed to the agency’s inspector general and the contracting officer. Knowing failure by a contractor principal to comply with these disclosure requirements is cause for suspension or debarment.
The FAR rule limits mandatory disclosures to a period of three years after contract completion because it would be difficult to locate evidence and responsible parties for older contracts. The final rule was revised to require reporting only of significant overpayments, which depends on both dollar value and circumstances. A suspension and debarment official may determine whether an overpayment is significant and whether suspension or debarment is the appropriate outcome for failure to report such overpayment.
Figure 31
TABLE OF CONTENTS
FY 20XX
YEAR ENDED JUNE 30, 20XX
