Auditing Subcontractors

Prime contractors or upper-tier subcontractors, not the government, are usually responsible for most aspects of their subcontractors.  The government is not considered to have “privity of contract” with their subcontractors so the prime contractor is responsible for all cost, pricing and contract administration of their subcontractors.  Prime contractor and upper-tier subcontractor oversight of their subcontractors has become a very hot area these days and a source of audit scrutiny by DCAA.

The Defense and Energy Departments and DCAA have come out with guidance stressing the importance of prime, as opposed to government, audit responsibility.  Recent government guidance at both federal agencies and at the state level has made adequate audits of subcontract cost or pricing data a key aspect of any prime contract.  Adequate subcontract administration is now a critical aspect of contract administration where prime contractors must now explicitly ensure their subcontractors are monitoring their indirect cost rates, adjusting their billings and adequately submitting subcontract incurred cost proposals.  Inadequacy of subcontractors’ accounting practices, which are usually unknown by the prime, is becoming a more frequent basis to downgrade the prime contract proposal.  Adequacy and responsiveness of subcontractor proposals can also be important factors in award decisions as well as administering the contract once an award is made.

Our staff, consisting of former CPA licensed DCAA auditors and supervisors, are uniquely qualified to both conduct the necessary audits and to have their results be credible with the government.  Subcontractors’ proposals, provisional billing rates, accounting practices, invoicing practices, claims, etc. need to be audited yet few prime contractors have the ability or resources to provide such services or if they do subcontractors may object to potential competitors reviewing their books.  Though delegation of some audit responsibility to the government is possible, delays may hold up critical award and administration and many subcontracting firms may be adversely affected by undergoing DCAA audits rather than having our firm conduct them.  We frequently audit subcontractors’ proposals and records and provide necessary conclusions to our clients for their pricing and oversight needs while keeping the details of our audits confidential in order to maintain the trust of the subcontractors we audit.

Subcontractor proposal audit services include:

• Audit subcontractor proposals, forward pricing rate proposals, invoices, claims, etc.
• Evaluate subcontractor’s accounting practices
• Recommend fixes for subcontractor deficiencies
• Provide subcontract administration services for prime contractors and upper-tier subcontractors