• Test 1

Expertise - US Federal Contracts

It is a common misconception amongst UK defence contractors that the Federal Acquisition Regulations (FARs) and the Department of Defense FAR supplement (DFARs) are so extensive that few people have an office bookcase capable of accommodating them. The truth is far from this. The FAR and DFAR run to a combined 3000 (all be it very small font) pages of text that sets out the applications applicable to not just the supplier but also to the government and its agents. In addition to these regulations there are a further 220 pages of Cost Accounting Standards Board regulations where some, but not all, of which are applicable to overseas contractors and there are detailed Joint Travel Regulations that place limitation on allowable travel costs.

The US system is proscriptive; it requires that ‘you do exactly what the requirements say you have to do’. It is not a suggestion scheme; it is not an indication of the principles from which substance has precedence over form. As Americans would say you do exactly what it says on the can.

The US system places greater obligations on larger contractors and contractors undertaking larger contracts. Many of the provisions of the FAR and DFAR are applicable if the contractor breaches certain value thresholds. Simplified procurement regulations are applicable to the acquisition of Commercial Items and low value procurement.

The term 'Commercial Item' is an important term in US contracting (defined within FAR Part 2.101) and has a different meaning from that of proprietary products within the UK non-competitive pricing arrangements. Items that may be subject to catalogue pricing in the UK may be subject to certified costing pricing data or disclosure of cost information to support price reasonableness within the US system.

The US system uses ‘Cost Type’ contracts far more frequently than MoD does and cost plus award fee is not unusual as a contract type. The disclosure of cost information to support pricing is extensive and the obligations to support certified cost and pricing data for contracts where there is inadequate price competition is extensive, onerous and fraught with longstanding risk of downward re-pricings in the event that the contractor failed to comply with the requirements. Whilst the US Truth In Negotiation Act (TINA) can represent a significant obligation when undertaking US government the requirement covers much of the same ground as the UK Fraud Act 2006.

Defense Contract Management Agency (DCMA) is responsible for the management of the contract and the Contracting Officer (PCO) is the only person authorised to instruct any contract change. Defense Contract Audit Agency (DCAA) are DCMA’s auditors and will fact-find on behalf of DCMA who have the executive authority to take decisions. A contractor’s labour and overhead rates will be agreed by DCMA who will use information and reports provided by DCAA. Within the UK a Memorandum of Understanding exists between the UK and US governments on audits and under these arrangements MoD CAAS perform the work carried out in the USA by DCAA and can report their findings to the DCMA contracting officer (ACO).

For cost type contracts the DoD’s audit emphasis will be on allowable cost and billing, whilst for fixed price contracts the audit emphasis tends to be on cost and pricing data.