The GAO Report on DCMA

Background

The Defense Contract Management Agency (DCMA) provides contract administration services for DOD buying activities. Its contract management offices (CMO) work with defense contractors to help ensure that goods and services are delivered on time, at projected cost, and that they meet performance requirements. DCMA also supports combatant commanders during contingency operations. 

The Scope of Their Review

The General Accountability Office (GAO) issued a report in November of 2011 on the challenges facing DCMA amid their ongoing efforts to rebuild their mission capacity. As DCMA recovers from years of significant downsizing, GAO was asked to (1) assess how the agency is positioning itself to meet its missions, (2) determine the extent to which contingency missions affect its oversight domestically, and (3) identify other factors that may affect its domestic missions going forward. GAO reviewed regulations, policies, and guidance, analyzed the status of contractor business systems for 17 defense contractors, and interviewed a wide range of DCMA officials.

What GAO Found

After undergoing significant shifts in its workforce, structure, and policies and procedures over the past 10 years, DCMA has taken steps to rebuild its capacity. As the workforce declined, the agency experienced significant erosion of expertise in some areas, such as the cost and pricing function, such that it could not fulfill all of its oversight functions. A shift to a substantially decentralized, customer-oriented approach in the mid-2000s, intended to mitigate the impact of this workforce imbalance, resulted in unintended consequences such as inefficiencies in how work was done at the CMOs. DCMA has since begun to rebuild workforce expertise and has instituted new, centralized policies and procedures. The agency expects to reach about 13,400 total civilian staff by 2015—a 43 percent increase from about 9,300 staff in 2008. DCMA’s military workforce has generally ranged between 500 and 600 in recent years.

CMO officials identified examples of how their operations have been affected by deployment of personnel to support contingency operations, such as delays in conducting timely quality assurance, audits of contractor processes, and contract close-out activities. The impact of deployments depends on the type of deployment or on certain features of the CMO; the timing of military leaders’ deployments; and multiple or extended deployments of civilian volunteers.

Several factors may affect DCMA’s ability to meet its missions going forward. One significant source of external risk stems from DCMA’s reliance on the Defense Contract Audit Agency (DCAA) to conduct audits of certain contractor business systems. Business systems—such as accounting and estimating systems—are the government’s first line of defense against fraud, waste, and abuse. Because of its own workforce struggles, DCAA has lagged in completing a number of such audits and is currently focusing on other high priority areas. GAO found, however, that DCMA contracting officers maintained their determination of many contractor business systems as adequate despite the fact that the systems had not been audited in a number of years—in many cases well beyond the time frames outlined in DCAA guidance. Further, based on a recent DOD policy change, DCAA is no longer auditing contractor proposals below certain cost thresholds, and DCMA will need to use newly-hired contract cost/price analysts to help pick up this increased workload. Internal risks are also present, such as uncertainty on the part of CMOs about whether funding will be available to retain personnel hired using the Defense Acquisition Workforce Development Fund.

What GAO Recommended

GAO recommended that DOD work with DCMA and DCAA to identify and execute options to assist in audits of contractor business systems. GAO also recommends that DCMA clarify for CMOs the agency’s plans to continue funding existing workforce positions and that it identify ways to accurately reflect the status of contractor business systems, such as changing the status to unassessed when audits are delayed. DOD concurred with the first two recommendations. DOD partially concurred with the remaining recommendation but discussed several planned actions which, if implemented, should improve the transparency of system assessments.

The Implications of the GAO Recommendations

The review guidelines discussed in the report, like the business systems adequacy criteria, are scattered across the DCMA and DCAA guidance documents and, in one case, the FAR. The following table shows the time frame for required re-audit of business systems and the source of the requirement

Business System

Time Frame

Source of Requirement

Accounting

At least every 4 years

DCAA Audit Guidance

Estimating

At least every 3 years

DCAA Audit Guidance

Material Management & Accounting

At least every 4 years

DCAA Audit Guidance

Purchasing

At least every 3 years

FAR 44.302(b)

Property Management

For High Risk Contractors, annually

For Moderate & Low Risk Contractors, at least every 3 years

DCMA Guidebook

Earned Value Management

Annually

DCMA Guidebook & DFARS

GAO recommends that DCMA identify ways to accurately and transparently reflect the current status of business systems, such as changing the status of a system to “unassessed” when a system has not been audited within DCAA’s time frames.

The DCMA Guidebook set forth the status selections available in the Contract Business Analysis Repository (CBAR) system as Approved, Disapproved, Not Evaluated, or Not Applicable.  It further instructs ACOs to enter business systems status as follows for all legacy determinations (those made prior to the DFARS Business Systems Rule:

  • “Approved” where the CO issued a legacy determination finding the business system to be “approved,” “adequate,” “acceptable,” or “no non-compliances found.”
  • “Disapproved” where the  CO issued a legacy determination finding the business system to be “disapproved.”
  • “Not Evaluated” where the  CO’s legacy determination used terminology other than “approved” “adequate,” “acceptable,” or “no non-compliances found” or “disapproved.” In such case, the business system status should be entered as “Not Evaluated” until a follow-up review is completed and the CO issues a final determination “approving” or “disapproving” the business system. 
  • “Not Applicable” where is there is no requirement to maintain the business system (such as Property or EVM).

The Guidebook does not currently contain guidance for determinations made subsequent to the DFARS Business Systems Rule, but letters from ACOs have been issued recently using both the “Approved” and “Disapproved” terminology. In a few cases, contractors have been told the status of their systems was “Unassessed,” but in every case the system had never been reviewed.

Conclusion

There is no evidence as yet that DCMA will implement the GAO recommendation to automatically revert the status of systems to unassessed when the time for reassessment has expired, but it seems likely given previous responses to GAO reports. This could have negative implications for contractor proposals, particularly in those competitive situations where the solicitation requires the contractor to provide evidence of approved systems. Where the date of such evidence is older than the required time interval for reassessment, the assertion that the system is approved could be disputed – either by the contracting activity or a potential protestor.

 

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