When reviewing a DCAA proposal, auditors are to look for 11 deficiencies as outlined in The Defense Contract Audit Manual.
To help you understand why a DCAA proposal might be denied, we have listed the 11 deficiencies here and described their meaning:
1. Unsupported Costs: This means that your DCAA proposal did not contain enough documentation to determine whether that cost is allowable or not. For cost estimates, this can become a problem because the estimate hasn’t occurred yet. Many auditors will keep the standard used for incurred costs, despite estimated costs being judgmental.
However, you will need to find some way of supporting all costs in your DCAA proposal such as historical indirect cost rates. If your estimator has some credibility, it will greatly help with engineering estimates.
2. Differences between proposed costs and supporting data due to support being out of date: Make sure that all your DCAA proposal estimates are based on up-to-date costs. What is considered justifiably up-to-date varies depending on the amount of data and estimates available in the field.
3. Large differences between detailed DCAA proposal amounts and summary totals: Even if your detailed amounts and summary totals are the same, make sure that the auditor can easily reconcile the amounts. If the discrepancy is because the auditor is using his/her judgment, then you can bring it up at negotiations.
4. When materials are a significant portion of the proposal, no bill of materials or other consolidated listing of the individual material items and quantities being proposed: If you are making a new product, then you might not be able to provide a bill of materials and be rejected by a novice auditor. Therefore, you should submit a reason for not having a bill of materials.
5. Failure to list parts, components, assemblies or services that will be performed by subcontractors when material amounts are involved: You can find instructions for this part of a DCAA proposal in FAR Table 15-2. If there is a reason that you will not be able to provide this due to the nature of the project, then submit a detailed report showing this.
6. Major differences between resulting unit prices proposed being based on quantities substantially different from the quantities required: DCAA proposal auditor’s usually base prices on bulk discount costs. If this is not how the products will be bought, the auditor’s decision to reject the DCAA proposal can be challenged.
7. Subcontract assist audit reports indicate problems with access to records, unsupported costs and indirect expense rate projections: The FAR Part 12 lists exemptions from having to give detailed costs for subcontracted work. Before using a subcontractor, you should make sure that the exemptions apply or you can get adequate records and cost information for your DCAA proposal.
8. No explanation or basis for pricing inter-organizational costs: This also falls under FAR Part 12 as described above.
9. No time-phased breakdown of labor hours, rates or basis of proposal for significant labor costs: You must be able to break down direct labor costs in your DCAA proposal into a time period such as months or quarters. In addition, you need to show direct labor rates by time periods and justify them if they rise by three percent or more. Make sure that labor is broken down into categories and they are all reconciled.
10. No indication of basis for indirect cost rates: Make sure that your DCAA proposal explains how indirect rates are calculated. You will also need to show the elimination of not-allowed costs rather than just not including it in the DCAA proposal.
11. The contractor does not have budgets beyond the current year to support indirect expense rates proposed for future years: This usually applies to DCAA proposals for very large projects spanning multiple years. You will have more leniency on the projected budgets for future years.
– DCAA News