Archive for the ‘Firm Fixed Price contracts’ Category

DFARS 252.242-7005 Contractor Business Systems Interim Rule

Wednesday, May 18th, 2011

This proposed DFARS is out for a third set of comments.  While the attached Federal register summarizing the previous
comments on this propose rule is long, it gives some great insight into the position DoD COs will take when determining adequacy of a particular business system and what if any monies will be withheld due to identified inadequacies.

Under this rule:

A)     DoD is defining contractor business systems as accounting systems, estimating systems, purchasing systems, earned value management systems (EVMS), material management and accounting systems (MMAS), and property management systems.

B)     DoD is implementing compliance enforcement mechanisms in the form of a business systems clause which includes payment withholding that allows contracting officers to withhold a percentage of payments, under certain conditions, when a contractor’s business system contains significant deficiencies. Payments could be withheld on—

1. Interim payments under—
   Cost–reimbursement contracts;
   Incentive type contracts;
   Time-and-materials contracts;
   Labor-hour contracts;
   Progress payments; and
   Performance-based payments.

The Discussion and Analysis section of this Federal Register contains a insight into DoD position as it relates to the business systems listed above, the process of determining adequacy, contractor appeals, DCAA audits and follow up audits.

While this is out for comment until July 18^th, CO payment withholding due to system inadequacies is part of the future.
Understanding what that means and how to ensure your systems are not caught up in this process are important to the financial wellbeing of your company.

Tim

Click here for a copy of the Federal Register