18. Excessive Costs

Comment: A number of respondents expressed concern that because of the significant potential cash flow impact, contractors may be forced to incur unnecessary costs (which will, in turn, ultimately be passed on to the Government) to make their systems deficiency-proof in an attempt to avoid significant withholdings. According to the respondents, while this may seem like an appropriate goal, the costs of approaching a level nearing perfection are disproportionate to the incremental benefits of having a perfect system. The respondents stated that this rule will ultimately result in non-value added direct or indirect costs. The respondents suggested that better solutions exist that have benefits that will accrue to all of the interested parties.

Response: The mandate of section 893 of the NDAA for FY 2011 is to improve contractor business systems to achieve timely and reliable information. Contract terms explicitly require contractors to maintain business systems as a condition of contracting responsibility and, in some cases, eligibility for award. Contract prices are negotiated on the basis that contractors will maintain such systems, so that the Government does not need to maintain far more extensive inspection and audit functions than it already does. DoD contractor competition will be enhanced with the improvement of DoD contractors' business systems and imminent cost savings that will result.