SUMMARY:

Business Systems-Definition and Administration (DFARS Case 2009-D038)

Summary:

DCN 20110518 includes an interim rule, with request for comments, on the effectiveness of DoD oversight of contractor business systems.

Supplementary Information:

I.  Background

DoD published an initial proposed rule for Business Systems--Definition and Administration (DFARS Case 2009-D038) in the Federal Register on January 15, 2010 (75 FR 2457). Based on the comments received and subsequent revisions to the proposed rule, DoD published a second proposed rule on December 3, 2010 (75 FR 75550). The public comment period closed January 10, 2011. On January 7, 2011, the Ike Skelton National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2011 was signed into law (Pub. L. 111-383). NDAA section 893, Contractor Business Systems, set forth statutory requirements for the improvement of contractor business systems to ensure that such systems provide timely, reliable information for the management of DoD programs. Based on the comments received, the requirements of the NDAA, and subsequent revisions to the proposed rule, DoD is publishing this interim rule with request for comments.

Contractor business systems and internal controls are the first line of defense against waste, fraud, and abuse. Weak control systems increase the risk of unallowable and unreasonable costs on Government contracts. To improve the effectiveness of Defense Contract Management Agency (DCMA) and Defense Contract Audit Agency (DCAA) oversight of contractor business systems, DoD is clarifying the definition and administration of contractor business systems as follows:

A.  DoD is defining contractor business systems as accounting systems, estimating systems, purchasing systems, earned value management systems (EVMS), material management and accounting systems (MMAS), and property management systems.

B.  DoD is implementing compliance enforcement mechanisms in the form of a business systems clause which includes payment withholding that allows contracting officers to withhold a percentage of payments, under certain conditions, when a contractor's business system contains significant deficiencies. Payments could be withheld on--

•  Interim payments under--

o  Cost-reimbursement contracts;

o  Incentive type contracts;

o  Time-and-materials contracts;

o  Labor-hour contracts;

•  Progress payments; and

•  Performance-based payments.

II.  Discussion and Analysis

The comments received in response to the second proposed rule have been analyzed and dispositioned as discussed here.

Dates:

Effective Date:

The Effective Date for this interim rule is 18 May 2011.

Comment Date:

Comments on the interim rule should be submitted in writing to the address shown in the notice on or before 18 July 2011, to be considered in the formation of the final rule.

Applicability date:

This rule applies to solicitations issued on or after May 18, 2011. Contracting officers are encouraged, to the extent feasible, to amend existing solicitations (including solicitations for delivery orders and task orders) in accordance with FAR 1.108(d), in order to include the clause at DFARS 252.242-7005, Contractor Business Systems, as applicable, in contracts (including delivery orders and task orders) to be awarded on or after May 18, 2011, and shall amend existing solicitations (including delivery orders and task orders) in accordance with FAR 1.108(d), in order to include the clause at DFARS 252.242-7005, Contractor Business Systems, as applicable, in contracts to be awarded on or after August 16, 2011.

Click here to read the entire Federal Register notice for this rule.