Government Contracting Post-Award Phase Explained by Expert

Defense contractors are legally required to maintain Cost Accounting Standards (CAS) compliant cost accounting systems to pass federal audits. The video demonstrates this through Ashley's failure to prepare for a DCAA audit, where she attempted to handle the situation by printing financial reports and highlighting them with colored markers, having apparently never heard of generally accepted accounting principles or DCAA requirements under CS 401. When the auditor asked for CAS compliant documentation, Ashley did not know what he was asking for. This illustrates that defense contracting requires documented, compliant cost accounting systems maintained according to federal standards, and ad-hoc approaches using basic tools are insufficient for meeting audit requirements. The video emphasizes that federal auditors expect qualified personnel who understand these standards, not consultants applying general business principles to specialized regulatory requirements.

DCAA (Defense Contract Audit Agency) compliance is required for Department of Defense contracts. Contractors must demonstrate they can handle contracts through accounting system reviews, internal process evaluations, payroll handling, and financial reporting. The SF1408 pre-award questionnaire must be completed, and outside auditors may be required to sign off on compliance. The audit process involves answering approximately 15 questions and can be completed in as little as 20 minutes. The cost is typically around $500-400. Contractors should hire accountants who understand government contracting and DCAA compliance to avoid compliance issues.

DCAA was established in 1965 to consolidate contract audit functions from individual military services into a single organization. The agency performs audits for approximately 9,000 contractors annually, examining over $350 billion in contract costs. DCAA operates under the Under Secretary of Defense Comptroller, ensuring independence from procurement offices like the Army, Navy, Air Force, and Defense Contract Management Agency. This independence is essential because every audit must comply with Generally Accepted Government Auditing Standards (GAGAS), which require independence to ensure credibility, objectivity, and remove bias from audit work. DCAA has three regions (Eastern, Central, Western) and Field Detachment for classified work. Audits occur across three contract phases: Pre-Award (price proposal, accounting system, cost realism audits), Post-Award (incur cost, labor evaluations), and Closeout (voucher review, termination). Small businesses are exempt from CAS audits.

Federal defense contractors must comply with DCAA (Defense Contract Audit Agency) audits to maintain their contracts, and Deltek software has become the preferred solution for accounting and compliance work in federal contracting, replacing QuickBooks as the industry standard.

The Defense Contract Audit Agency (DCAA) conducts pre-award accounting system reviews to determine if contractors have acceptable accounting systems designed for accumulating costs under prospective government contracts, using Standard Form 1408 to evaluate compliance with DFARS 252.214.006 requirements, which include proper segregation of direct costs (identified specifically with a particular final cost objective) from indirect costs (identified with two or more final cost objectives), logical and consistent allocation methods for indirect costs to intermediate and final cost objectives, and reliable cost data accumulation that minimizes misallocation and mischarging risks.

Agencies report past performance information into the Contractor Performance Assessment Reporting System (CPARS), a suite of web-enabled applications used to document and collect performance information. An evaluation consists of administrative information (contractor identification, dollar value, significant dates, subcontractors), contract effort description (from statement of work), ratings assigned using a five-level scale, assessing official narrative providing detail to support ratings, contractor narrative comments allowing response indicating concurrence or non-concurrence, and reviewing official comments when contractors do not concur. Best practices for quality evaluations include ensuring consistency with FAR and Federal Guidance definitions, supporting ratings with objective evidence from status reviews, earned value management data, cost and schedule metrics, technical reviews, quality assurance evaluations, and subcontract reports; addressing the benefit or impact of performance to the government; detailing strengths and weaknesses while considering any government role in contractor's inability to meet requirements; and containing objective statements devoid of personal conjecture. Upcoming improvements include consolidating separate modules for architect engineer and construction contracts into one unified CPARS software application by July 1, 2014, and enhancing PPIRS with improved metric displays and ad hoc reporting features available in December 2014.

CPARS (Contractor Performance Assessment Reporting System) is an annual evaluation on a 1-5 scale that businesses receive after contracts exceeding the simplified acquisition threshold ($250,000). CPARS is becoming a primary way contracting agencies determine if a business will receive future contracts. Scores of 3 or less place businesses in a danger zone. GSA no longer uses open ratings, so CPARS and past performance questionnaires are the only ways to prove past performance.

The CPARS is a performance rating system where the agency submits a report card about the contractor's performance. Contractors receive an email to respond to any comments made about their performance. This is important because other agencies will review CPARS reports when evaluating past performance for future opportunities. Contractors should respond to all comments, especially negative ones, to ensure their performance record is accurate and favorable.

Contractor Performance Assessment Reporting System (CPARS) evaluations should be treated as a continuous 12-month activity throughout the contract lifecycle. Contractors should work on CPARS ratings at least monthly to ensure positive outcomes when the evaluation period concludes. This proactive approach ensures that performance feedback reflects the contractor's actual work quality rather than leaving it to chance at the end of the contract term.

CPARS (Contracting Performance Assessment Reporting System) is the government's standardized mechanism for evaluating contractor performance across agencies and over time, serving two primary purposes: (1) during proposal preparation, it assesses past performance of existing contractors and can supplement civilian performance data for new contractors, and (2) during contract execution, it requires annual evaluations for multi-year contracts (with quarterly options), functioning as a continuous performance report card; contractors should proactively address CPARS requirements from contract initiation, understand FAR-defined performance criteria (Exceptional, Very Good, Satisfactory, Marginal, Unsatisfactory), and submit thoughtful comments on draft evaluations to potentially improve ratings, while subcontractors must ensure evaluation criteria explicitly include their performance to be assessed.

In government contracting, termination for convenience grants the government unilateral authority to end a contract at any time for any reason, requiring contractors to prepare comprehensive settlement proposals within specific timelines (inventory within 120 days, subcontractor claims within 6 months, complete proposal within 1 year) that recover allowable costs including direct and indirect expenses, equipment depreciation, and subcontractor costs, while adhering to strict documentation requirements and understanding that profit recovery is limited to completed work and that challenging such terminations is extremely difficult due to the high burden of proof required.

Termination for Convenience (T4C) is a government unilateral right under FAR 49.102 to terminate a prime contract in whole or in part based on the contracting officer's determination of the government's best interest, typically used when government needs or funding change rather than for performance issues. Contractors must continue performance until the effective date specified in the termination notice, which must include five key elements: the contract being terminated, the effective date, the extent of termination, special instructions, and employee guidance. Contractors can challenge a T4C only by proving abuse of discretion or bad faith, which requires demonstrating subjective malice, lack of reasonable basis, or violation of applicable statutes. Upon receiving a termination notice, contractors should immediately identify the effective date, stop work and subcontracts on that date, continue performance until the effective date, protect government property, and promptly notify the contracting officer of any legal proceedings. The settlement proposal should include starting load costs, rental costs, subcontractor claims, indirect costs, settlement expenses, and loss of equipment, with costs being allowable, allocable, and reasonable. Best practices include flowing down termination clauses to subcontracts, retaining supporting documentation, implementing strong cost controls, and submitting settlement proposals timely.

When the government terminates for convenience, contractors must submit a T4C (Termination for Convenience) settlement proposal outlining costs associated with the termination. If the government accepts this proposal, it becomes a claim. If no agreement is reached, the contractor converts the settlement proposal to a certified claim under the CDA.

Termination clauses should be negotiated carefully to protect interests. Many contracts contain unilateral termination clauses allowing one party to terminate without cause with short notice periods. To make termination clauses favorable: (1) Request minimum guaranteed payments if terminated early, (2) Ensure termination is only for cause with proper notice periods, (3) Include opportunities for the other party to rectify breaches before termination, and (4) Add amicable settlement provisions. These negotiations protect investments made during the contract period and ensure fair exit mechanisms when business relationships end.

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