Prime is Responsible for Subcontractor’s Lack of Record Retention
(Editor’s Note. The following provides a dramatic example of the responsibility of prime contractors to ensure their subcontractors’ records are in order.)
AAC received a cost-plus-fixed-fee (CPFF) contract and subcontracted a portion to MGA on a CPFF basis. The subcontract flowed down the audit negotiation clause of FAR 52.215-2 which referenced FAR 4.7 relating to record retention periods. MGA later filed for bankruptcy and though its costs for the first two of the six years of its subcontract were audited, the last four were not. When DCAA attempted to audit the third year costs, the bankruptcy trustee could not or would not provide any documentation supporting $220,000 of costs billed and paid to AAC. Therefore, DCAA questioned this amount and when the CO sustained the questioned costs and asked for a refund of $220,000 from AAC, they appealed.
Because there was no evidence to indicate what costs MGA incurred in performing the subcontract during the year in question or whether they were allowable or allocable to the prime contract, the Board concluded there was no basis upon which to justify the costs. The Board determined that AAC made no attempt to ensure MGA complied with the record retention provisions of its subcontract and concluded the government’s claim for $220,000 was justified (Analytical Assessment Corp., ASBCA Nos. 52393 and 52394).
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