DCAA has issued a “clarification” to its early guidance on citing contractors for estimating system deficiencies for failing to obtain and audit cost or pricing data from subcontractors.  The earlier guidance, reported in our September-October issue, reminds auditors that a contractor is required to obtain cost or pricing data and conduct a cost analysis of “prospective sources” for procurements exceeding $500,000 prior to negotiations (unless otherwise exempted such as a commercial item).  When the subcontract either exceeds $10 million or represents more than 10% of the prime contract and still meets the $500,000 threshold, auditors are instructed to issue estimating system deficiencies if the cost and pricing data is not obtained and analyzed.

The new guidance states that under “exceptional circumstances” it is not always possible to obtain and analyze subcontractor cost and pricing data prior to negotiation of the prime contract.  Criteria for “exceptional circumstances” are the contractor has made a good faith effort to comply with FAR requirements but circumstances beyond its control (e.g. government imposed time constraints) prevented completion of steps related to cost and pricing data.  The guidance states for these exceptions to apply the contractor should show it has policies and procedures in place that provides for the contractor to (1) timely identify such circumstances and (2) submit requests to the ACO to be excused from obtaining and analyzing the data.  Such requests need to include an explanation why it cannot be submitted in a timely manner and offer a proposed alternative method such as applying to a proposed subcontract a decrement factor based upon the historical differences between initial proposed subcontractor amounts and the amount negotiated.

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