As we reported in the last issue of the GCA REPORT, recent DCAA guidance calls for unilaterally decrementing contract costs of contractors who are 12 months late in submitting their incurred cost proposals by 20 percent in the absence of recent historical data.  The National Defense Industrial Association criticized the guidance in letters to DCAA and other DOD departments.  Its major points were:

1.  Since smaller companies are usually the offenders, it will fall disproportionately on them.

2.  The 20% decrement factor DCAA says is a result of its actual audit experience was incorrectly computed – the decrement factor should have been computed based on the percentage of questioned costs that are ultimately sustained, not simply those costs questioned during an audit.

3.  It is inappropriate to apply the 20% decrement to both indirect and direct costs since the vast majority of questioned costs are usually indirect, not direct, costs.  Applying the decrement factor to all costs can unfairly result in significant financial harm to contractors.

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