27.  Payment Withholding Process

Comment: Respondents suggested that the final rule should require direct communication between the contracting officer, DCAA, and the contractor to allow discussion relating to an identified deficiency before payment is withheld. The proposed clause should provide sufficient time for the contracting officer and contractor to address potential system deficiencies. The respondents recommended that the rule require the contracting officer to work collaboratively with the contractor in determining whether deficiencies exist, whether there is a material risk of harm, and how to resolve the deficiencies without resorting to a payment withholding; and allow the contractor 90 days to address the potential deficiencies and submit a response documenting its position before the contracting officer can issue a final determination and impose a payment withholding. Otherwise, the rule denies a contractor due process by allowing the contracting officer to issue initial determinations prior to receiving all the facts from the contractor.

Response: The rule provides adequate opportunities for communication between the contracting officer and the contractor prior to the implementation of payment withholdings. The contractor will be notified of a preliminary finding of a deficiency during the course of formal system reviews and audits. This occurs before the auditor or functional specialist releases a report to the contractor and contracting officer. After receiving a report, the contracting officer will promptly evaluate and issue an initial determination. The contractor is then allowed 30 days to respond to any significant deficiencies. Contractors are given ample opportunity to present their position during system reviews. Accordingly, the requirement for a contractor to respond within 30 days of an initial determination is adequate.