New Rule on Audit Access Rights for OTA Prototype Projects
The Defense Department passed a final rule May 20 to provide audit access rights on Other Transaction agreements (TAs) for prototype projects where the government provides funds exceeding $5 million. DOD states the new rule balances the needs to attract the widest possible private sector participation with the needs of auditing contract records to ensure compliance with contract terms. Though DOD does not usually require audits of fixed price OTAs, termination settlements on fixed price contracts based on costs will have audit access. Examples of cost type OTAs having audit access include (1) an agreement where at least one third cost is shared by a contractor (2) where payments are based on actual costs or reports generated by the contractor’s cost records or (3) where there may be a fixed price but the additional effort is based on cost projections. When an OTA includes the new DOD audit clause, the awardee must flow down the clause to subcontractors whose sub-agreement needs will exceed $5 million. Frequency of audits will be determined by the agreement officer and the audit will be conducted by either DCAA if the contractor is working on other contracts subject to CAS or FAR or an independent public accountant (IPA). An exception is provided if there is an “adverse impact” to non-traditional contractors who are defined as those not subject to CAS for at least one year who do not have another contract in excess of $500,000 subject to FAR (Fed.Reg. 27452).
In recognition of the fact many OTA participants contribute their own funds to projects, DOD is proposing a rule to continue OTA prototype projects into production without competition under certain circumstances. Production contract awards to OTA awardees without competition can occur when (1) the OTA required contractors to provide at least one third the costs of the prototype project (2) the OTA was competitively awarded and DOD evaluated the proposed quantity and target prices for follow-on production units as part of that competition (3) DOD considered the balance between contributions from contractors with the interest of the government and (4) the awardee successfully completed the prototype project (Fed. Reg. 27497).
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