Government Contractors: Are Your Business Systems Compliant?
As a result of the National Defense Authorization Act (NDAA) of 2011, all contracts that are subject to Cost Accounting Standards (CAS) are required to have acceptable business systems as a condition to contract award. This means anyone with a cost-reimbursement contract, incentive-type contract, time-and-materials contract, or labor-hour contract that could be affected if the data produced by a contractor business system has a significant deficiency. The Department of Defense’s reasoning for this being put into place was, in their own words, “Contractor business systems and internal controls are the first line of defense against waste, fraud and abuse”.
The Contractor Business Systems clause at DFARS 252.242-7005 specifies six key business systems that DoD contractors must maintain as acceptable systems:
Accounting System (252.242-7006)
- DFARS 252.242-7006 defines the accounting system as the contractor’s system or systems for accounting methods, procedures, and controls established to gather, record, classify, analyze, summarize, interpret and present accurate and timely financial data for reporting in compliance with applicable laws and regulations, including FAR and/or CAS and DFARS 252.242-7006(a)(2).
Cost Estimating System (252.215-7002)
- “Acceptable estimating system” means an estimating system that:
- Is maintained, reliable, and consistently applied
- Produces verifiable, supportable, documented, and timely cost estimates that are an acceptable basis for negotiation of fair and reasonable prices
- Is consistent with and integrated with the Contractor’s related management systems
- Is subject to applicable financial control systems
Material Management & Accounting System (MMAS) (252-242-7004)
- “Material management and accounting system (MMAS)” means the Contractor’s system or systems for planning, controlling, and accounting for the acquisition, use, issuing, and disposition of material.
Earned Value Management System (EVMS) (252.234-7002)
- A disciplined methodology that integrates a project’s work scope, schedule, and budget using a performance measurement baseline to be able to objectively measure accomplishments (earned value). Must comply with American National Standards Institute/Electronic Alliance Standard 748 (ANSI/EIA 748). Different rules apply for those with contract proposals over $50mil, between $20 and $50mil, and under $20mil.
Contractor Purchasing System (252.244-7001)
- Government Contractors may be subject to a Contractor Purchasing System Review to evaluate the efficiency and effectiveness with which the contractor procures goods and services by spending Government funds and complies with Government policy when subcontracting.
Contractor Property Management System (252.245-7003)
- To be acceptable, it is required that your government property system comply with paragraph (f) of the contract clause at Federal Acquisition Regulation 52.245-1. Government contractors are expected to maintain records to identify Government property, track maintenance, secure and maintain the property, and more.
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