By Paul Skurpski, PVBS Vice President of Sales & Marketing

paul skurpski

So what are the real costs of not being DCAA compliant? As I’ve addressed in previous blogs, not having a compliant cost accounting solution in place can restrict companies from pursuing work with the government.

Government contractors can be penalized with payment claims withholdings that can range from 5 percent (they could go down to 2 percent with a government’s accepted corrective action plan) to 10 percent for significant deficiencies in a contractor single or multiple business systems required in the contract. The problem is that many government contractors average 5 percent to 10 percent net income so withholdings in this range could easily bring a government contractor’s profit to a breakeven point or even a 5 percent net loss! This could create uncertainties about the organization as a going concern.

Some of the most significant costs of non-compliance include, but are not limited to:

  • No income due to not winning the government contract
  • Hard withholding of payment claims for inadequacy(ies)
  • Getting contracts terminated
  • Debarment from doing business with the Federal Government

The costs will continue for contractors that are not compliant. For example, penalties can be assessed on payments and reimbursement. Indirectly, other cost-related impacts may be:

  • Higher G&A costs due to the need to support more audits
  • Unexpected expenses to address the deficiencies noted by the Government
  • Low employee morale and less productivity
  • Employee redeployment to address the inadequacies
  • Consultant fees might be higher to implement reactive solutions than proactive solutions

Non-compliance can also endanger business development efforts. BD costs can typically range from 3 percent to 10 percent of a company’s total revenue per year. Let’s say a BD team submits 100 bids in a year and the company’s historical winning rate is 10 percent. Let’s say, however, that from those ten, just eight require an adequate system. With these assumptions, it is expected that if the company does not have an adequate accounting system, their BD efforts could be negatively impacted by 80 percent of their development efforts costs.

Due to its longevity in the market, Microsoft Dynamics NAV for Government Contractors has been recognized by the DCAA as an “approved” solution. We put approved in quotes because the DCAA does not actually approve or disapprove solutions. But since our clients in total have gone through hundreds of audits, and the fact that the system is designed and configured for a contractor, the DCAA has a high level of comfort with it. As they audit more and more government contractors who are using the solution, their comfort will grow.