New DCAA Guidance – Good News for Contractors?! Professional and Consulting Service Costs

Consultant and professional service costs have long been considered a major risk area by government auditors and a source of frustration among contractors. Over the years, the Defense Contract Audit Agency (DCAA) has aggressively questioned or disallowed consultant and professional service costs for various documentation reasons. Prior DCAA audit guidance was interpreted by auditors to require the contractor to support all consultant costs with acceptable evidence from each of the three categories listed in Federal Acquisition Regulation (FAR) 31.20605-33(f) and that the absence of any or all will operate as a presumption of inadequate support. Auditors were told not to substitute their auditor judgment for the explicit requirements of the cost principle and may not use evidence from one category to satisfy as evidence for the other categories.

FAR 31.205-33(a) defines professional and consulting services costs as services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of the contractor. These can be services to enhance the contractor’s legal, economic, financial, or technical position, but contractors should place special emphasis on the phrase “special skill” in that definition to properly categorize the services as consulting or purchased labor. To support consultant and professional service costs, FAR 31.205-33(f) contains three requirements for evidence to ensure the allowability of professional and consultant service costs: (1) details of all agreements; (2) invoices or billings and (3) consultant work product and related documents. While the regulations do not require written documentation, DCAA has had a history of requiring written documentation, particularly in the area of work product. Contractors have had difficulty maintaining this level of support because some consultant agreements may be verbal or the work performed by the consultant did not result in a physical work product.

Read the full article by Dixon Huges Goodman HERE.

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