By Paul Skurpski, PVBS Vice President of Sales & Marketing
Many of the government contractors we meet are fearful that not having a DCAA compliant cost accounting system in place will harm their business prospects with the Government. Most of their fears stem from a lack of understanding what not being compliant can mean. In this blog, I’ll discuss the cost risks of not having a compliant cost accounting solution and how this can lead to bigger problems down the road. I’ll also discuss how to eliminate some of the costs associated by not being compliant.
First, let’s get the obvious out of the way. The easiest way to eliminate any costs of not being compliant is to become compliant. And, as we’ve discussed in other blogs, being compliant is not that difficult of a chore if you have the right systems and the right processes in place. Of course, the other way to avoid any costs with not being compliant is to not have any contracts, but no one reading this blog wants to consider that.
Most of the questions we get about the costs of compliance come from government contractors who have never been through a DCAA audit. They’ll ask if they can bid on government contracts if they don’t have a compliant cost accounting system. Is it a “Catch-22?” Can I bid on and win contracts if I don’t have a compliant system and if I do win, will I lose the contract if I’m not compliant?
There should not be a “Catch 22,” but it happens. Technically, a government contractor or potential government contractor who did not have their system audited by the government should not be discriminated from other government contractors who have a pre-audited solution in place. The government contractor can submit a protest if they feel they were discriminated in this regard.
There is a lot that a government contractor can do to try and prove that their cost accounting system is compliant. They can hire a CPA or consulting firm to review and certify that their accounting solution is compliant to serve the government. When they submit their bid, they can attach this document to the bid and put a description of the accounting system and policy and procedures in the summary and go from there. This is usually required anyway.
PVBS has provided companies that were considering purchasing Dynamics NAV with a document as such that explains how the software will help with compliancy. That would allow them to get past a pre-award audit. Recently, though, we’ve been hearing more and more that the DCAA auditors are not as lenient as they might have been and are telling contractors that if you don’t have the system in place at all, you can’t start the contract.
There is some confusion in the market however. We’ve seen some cases where a contractor was able to easily get their accounting system approved, sometimes because the contracting officer was not under time pressure and was able to take the time to approve it. We’ve also seen some cases where the contractor had such a unique solution and the government sorely needs the service, so the requirement for a compliant system was lessened.
However, if you’re one out of 20 companies that offer a commodity service and you don’t have a compliant system, you will have a problem. Why should the government accept a bid from somebody that doesn’t have an approved accounting system when they already have a large selection of candidates that do?
This could be a quandary for the government if they’re using this as a discriminator. Let’s say you don’t have a compliant accounting solution, but you offer the lowest priced technically accepted (LPTA) solution. Which should the government give a higher priority to? It’s not always clear but this should give you even more incentive to have a compliant solution in place. You’re obviously going to win contracts because you’ve figured out how to be skilled at LPTA contracting. And, if you win enough contracts by truly understanding how to be LPTA, it’s assured that you’ll eventually be audited.
In my next blog, I’ll address the specific costs government contractors may have to pay.