14.  Risk Management vs. Risk Avoidance

Comment: The proposed rule's focus on risk avoidance rather than risk management has the potential of significantly increasing the cost of business systems without corresponding benefits. To make systems deficiency-proof in order to avoid significant payment withholdings, contractors may be forced to incur unnecessary costs that would be disproportionate to the incremental benefits of having near perfect systems. DoD has failed to consider the concept of causal or beneficial relationships between the costs to bring business systems into compliance with the rule, and the benefits of protecting the Government from perceived risk.

Response: DoD will only withhold payments in cases where there are significant deficiencies in the contractor's business systems. In such cases, the ability of the contractor to manage risk is questionable and the potential risk of harm to the Government is increased. Under the rule, a contractor business system may contain deficiencies that do not affect materially the ability of DoD officials to rely on information produced by the system. Accordingly, the standard for withholding payments is commensurate with the risk of harm to the Government. In the long run, both the contractor's and Government's administrative costs should be reduced with the reliance on efficient contractor business systems.