Government and Contractor Responsibilities on Auditing Proposed Subcontract Costs

(Editor’s Note. We often encounter uncertainty on what is the role of the prime contractor or higher tier subcontractor in validating its subcontractors’ proposed costs. The prior, quite common practice of leaving audits of proposed subcontract costs to the government is being challenged by DCAA where we are finding, increasingly, failure to conduct required cost or pricing analyses resulting in assertions of estimating system and internal controls deficiencies on the part of both prime contractors and higher tier subcontractors. The question has taken on added urgency in the light of a June 30 issued DCAA Audit Guidance on Performing Audits of Subcontract Forward Pricing Proposals where the role of the auditor and the prime contractor is spelled out.)

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