Meaning of Requirement to Monitor Subcontractor Costs
Q. We have a government SBIR CPFF contract for which we subcontracted a vendor for foundry services under a CPFF arrangement. I know that we are required to monitor our subcontracts, but I do not know to what extent and how to go about it.
A. The regulations are general and do not provide a great deal of practical guidance. They say, for example, it is the prime’s responsibility to audit their subcontractors, make sure they have an adequate accounting system, their invoices are accurate, etc. Sometimes, DCAA provides the audit function, but less and less these days, at least on a timely basis. You can request they audit your subcontractor. Alternatively, you will contract with CPAs like us (make sure they have DCAA audit-like experience) to do the audit where the parties, if the subcontractor is reluctant, agree not to divulge subcontractor information to the prime but rather will put forth a position on the amount claimed (e.g. question $X dollars of overhead, $Y of direct labor).
