20.  NDAA Compliance

A number of respondents, citing section 893 of the NDAA, provided the following recommendations:

Comment: Contractor business system disapproval should be based on "significant deficiencies" as defined in section 893 of the NDAA, and the maximum cap should be reduced to 10 percent in accordance with the NDAA.

Response: The interim rule has been revised to reflect the language in section 893 of the NDAA by incorporating the statutory language regarding "significant deficiencies" and reducing the cumulative payment withholding percentage from 20 percent to 10 percent.

Comment: The proposed rule mandates payment withholdings on all contracts, including firm-fixed price contract types, while the NDAA language makes payment withholdings discretionary, and permits them to be applied only to CAS-covered contracts and not fixed-price contract types. The rule should be adjusted to exclude those contract types, including firm-fixed-price contracts that have been discretely excluded by the Authorization Act.

Response: Section 893 requires the Secretary of Defense to develop and initiate a program for the improvement of contractor business systems to ensure that such systems provide timely, reliable information for the management of Department of Defense programs. Furthermore, the statute sets forth that an appropriate official of the Department of Defense may withhold up to 10 percent of progress payments, performance-based payments, and interim payments under covered contracts from a covered contractor, as needed, to protect the interests of the Department and ensure compliance, if one or more of the contractor business systems of the contractor has been disapproved. To comply with this requirement, under the mandated DoD program for the improvement of contractor business systems, which includes the implementation of this interim rule, DoD has interpreted the definition of "covered contract" to mean a contract that is subject to the Cost Accounting Standards under 41 U.S.C. chapter 15, as implemented in regulations found at 48 CFR 9903.201-1 (see the FAR Appendix), which includes CAS-covered fixed-price type contracts and performance-based contracts, as well as cost type contracts.

Comment: In accordance with the NDAA, the rule should identify DoD officials who are responsible for the approval or disapproval of contractor business systems. Furthermore, DoD officials must be made available to work with the contractor to develop corrective action plans and schedules for implementation.

Response: The interim rule continues to identify cognizant contracting officers as the DoD officials who are responsible for the approval or disapproval of contractor business systems.