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Form 1s – An Overview Breakout Session # F15 Name Rita Wells David Richardson Date July 31, 2012 Time 4:00 – 5:15 pm 1 Form 1s – An Overview What is a Form 1? Key Terms, Acronyms and References What is the impact on a contractor that receives a Form 1? What are the next steps? Contractor? Government? 2 What is a Form 1 ? DCAA Form 1, Notice of Costs Suspended and/or Disapproved • Notice Issued by DCAA to a Contractor • Applies to Cost Reimbursement Contracts • Identifies Contractor’s Costs to be Suspended or Disapproved • NASA Form 456 (15-105) used on NASA contracts 3 Form 1 4 Types of Form 1 Notices Regular Form 1: When the cost element to be suspended or disapproved is applicable to only one contract, a regular DCAA Form 1 will be issued. Blanket Form 1: Where the cost element to be suspended or disapproved is applicable to more than one contract, a blanket DCAA Form 1 will be issued. • Contains a description of the issue involved and lists all affected contracts. 5 Form 1s – Key Terms & Acronyms DCAA – Defense Contract Audit Agency DCAA Form 1 - Notice of Costs Suspended and/or Disapproved under Cost Reimbursement Contracts DCMA – Defense Contract Management Agency FAR – Federal Acquisition Regulations DFARS – Defense Federal Agency Regulation Supplement ACO – Administrative Contracting Officer 6 Form 1s – References FAR 42.302 (a) - Contract Administration Office Functions (7) Determine the allowability of costs suspended or disapproved as required (see Subpart 42.8), direct the suspension or disapproval of costs when there is reason to believe they should be suspended or disapproved, and approve final vouchers. (8) Issue Notices of Intent to Disallow or not Recognize Costs (see Subpart 42.8). 7 Form 1s – References FAR 31- Contract Cost Principles and Procedures Contains cost principles and procedures for (a) The pricing of contracts, subcontracts, and modifications to contracts and subcontracts whenever cost analysis is performed (see 15.404-1(c)); and (b) The determination, negotiation, or allowance of costs when required by a contract clause. 8 Form 1s – References DOD Directive 5105.36 (January 4, 2010) – DCAA has responsibility to “ Approve, suspend, or disapprove costs on reimbursement vouchers received directly from contractors, under cost-type contracts, transmitting the vouchers to the cognizant Disbursing Officer.” 9 Form 1s – References FAR 42.8 - Disallowance of Costs - Prescribes policies and procedures for: (a) Issuing notices of intent to disallow costs; and (b) Disallowing costs already incurred during the course of performance. 10 Form 1s – References FAR Subpart 32.6 - Contract Debts • Contracting Officer has primary responsibility for identifying and demanding payment of contract debts. • Amount of indebtedness determined by the contracting officer shall be an amount that— (1) Is based on the merits of the case; and (2) Is consistent with the contract terms. • Contracting Officer shall issue the demand for payment as soon as the contracting officer has determined that an actual debt is due the Government and the amount. 11 Form 1s – References DOD Instruction 7640.02 - Contract Audit Follow-up • Procedures for tracking and resolving DCAA reports • Requirement for Contracting Officers to resolve DCAA audit reports within 6 months of report issuance, and disposition them within 12 months of report issuance 12 Form 1s – References DCAA Contract Audit Manual (DCAM) (May 24, 2012) Section 6-900 - Notices of Cost Suspensions and Disapprovals under Cost-Reimbursement Contracts • General Guidelines for Suspensions and Disapprovals • Types of DCAA Form 1s • Preparation, Acknowledgement & Distribution of Form 1s • Deductions on Public Vouchers for Suspensions & Disapprovals • Contractor’s Request for Reconsideration or Claims 13 What is the impact on a contractor that receives a Form 1? • The Form 1 will either suspend or disapprove costs. • The impact on the contractor, and the contractor’s response, will depend on whether the costs are suspended or disapproved. 14 Suspension of Costs Direct or indirect costs that lack adequate explanation or documentation may be suspended until: • The required data are received, and • A determination can be made as to the cost allowability 15 Suspensions - Continued Suspensions may also be used to: • Reduce the fixed-fee when the interim amount claimed for payment is in excess of the amount authorized by the contract. • Establish the necessary withholding reserves required by the contract terms when the contractor fails to do so. • Suspend costs that are otherwise allowable but that have not met the contract billing requirements. 16 Disapproval of Costs Costs claimed by the contractor • For which audit action has been completed, and • That are not considered allowable, Will be disapproved. 17 Disapproval of Costs - Continued Disapproved cost may comprise any of the following: • Items specifically limited or excluded by FAR Part 31 or other terms of the contract. • Items which, although not specifically unallowable under (1) above, are determined to be • unreasonable in amount, • contrary to generally accepted accounting principles,or • not properly allocable to the contract • Items disapproved at the direction of the ACO 18 What Are the Next Steps – For The Contractor ? • Following the issuance of a DCAA Form 1, the contractor may: (1) request the cognizant ACO in writing to consider whether the unreimbursed costs should be paid and to discuss the findings with the contractor; and/or (2) submit to the ACO a claim for disapproved costs in accordance with FAR 33.2 (Disputes and Appeals). 19 What Are the Next Steps – For The Contractor ? • The contractor should make every attempt to submit the required explanations, documentation, data, or justification in support of suspended costs. • The focus should be on demonstrating price reasonableness. • If the contractor can support suspended costs, the Form 1 may be rescinded. 20 What Are the Next Steps – For The Government ? • DCAA auditor is responsible for: • Keeping the ACO informed of issues that may result in a Form 1. • Consulting with the Contracting Officer if the full immediate deduction of a cost suspended or disapproved would seriously impair ability of the contractor to continue contract performance. • A previously issued DCAA Form 1, including those issued at the direction of the ACO, may be rescinded by the auditor. 21 What Are the Next Steps – For The Government ? • ACO is responsible for resolving Form 1s within 6 months and dispositioning them within 12 months. • If the ACO supports the DCAA Form 1, the ACO should issue a demand for payment as part of the final decision, if a final decision is required (FAR 32.604 and FAR 32.605(a)). • If the ACO issues a demand for payment and the contractor does not make payment within 30 days, the ACO may authorize DCAA to disapprove the costs under another contract with future billings. 22 What Are the Next Steps – For The Government ? • ACO should notify the auditor promptly of any claims they may receive. • The ACO will normally make a written determination as promptly as practicable on contractor written requests for reconsideration • When a formal claim is filed, the ACO should make a final decision within 60 days. • If a contractor disagrees with the ACO’s final decision regarding a claim, the contractor may appeal the decision to the ASBCA or the Court of Federal Claims. 23 What Are the Next Steps – For The Government ? • If the ACO does not sustain the contract auditor's cost disapproval: • DoD Instruction 7640.02 requires the ACO to comply with the documentation and review procedures prescribed by his/her DoD component prior to final disposition of the disapproved cost. • When a claim of disapproved costs is decided in the contractor's favor, the ACO may advise the contractor to resubmit on its next public voucher the amount determined acceptable by the ACO. 24 Form 1 Summary • Form 1 Notices are issued by DCAA • The Final Decision on sustaining Form 1s is made by the ACO • Issuance of Form 1 Notices may result in immediate withholding of monies from a contractor’s invoices • Contractors can provide additional supporting documentation of price reasonableness to the auditor for suspended costs • Contractors can request discussions with the ACO and/or file a Claim 25 Form 1s Questions / Discussion 26