The Department of Defense Inspector General (DOD-IG) recently issued an audit report identifying extensive deficiencies in the Defense Contract Management Agency’s (DCMA) business system review processes. The DOD-IG’s October 1, 2015 report, available here, follows closely a separate DOD-IG report issued in June 2015 containing similar findings. These reports will likely result in changes to DCMA’s internal business system processes, resulting in faster system reviews and an increased DOD emphasis on business system requirements and system disapprovals. In particular, contractors waiting on the status of pending system reviews should expect to see initial and final determinations issued promptly to address the DOD-IG’s concerns.

In the October 1, 2015 report, the DOD-IG reviewed DCMA’s actions in connection with 21 Defense Contract Audit Agency (DCAA) audit reports that identified business system deficiencies. The DOD-IG report found significant non-compliances relating to five business system requirements:

  • DCMA failed to timely issue initial determinations of business system significant deficiencies within 10 days of receiving DCAA’s report
  • DCMA did not require or follow-up with contractors to obtain responses to initial determination findings within 30 days
  • DCMA did not timely or adequately evaluate contractor responses to initial determinations within 30 days of receipt as required by the business systems clause, instead averaging 261 days to complete the evaluation of the contractor’s response
  • DCMA did not issue final determinations within 30 days of receiving contractor responses to initial determinations
  • DCMA did not disapprove contractor systems and withhold payments as required when significant deficiencies still existed or corrective actions had not been verified.

The non-compliances identified in the DOD-IG’s October 1, 2015 report are largely identical to those contained in the DOD-IG’s June 29, 2015 report that evaluated DCMA’s actions relating to estimating system reviews. The DOD-IG recommends that contracting officers be subject to remedial actions for failing to comply with business system requirements.

The DOD-IG’s findings are targeted at speeding up DCMA’s often-lengthy internal business system review processes. Contractors dealing with DCAA’s expedited efforts to get through their incurred cost audit backlog know that this emphasis on timeliness can lead to shortcuts and significant mistakes. Contractors can expect DCMA to accelerate initial and final determinations and system disapprovals, and also to be less lenient on contractor requests for extensions of time to respond to initial determinations.

More substantively, the DOD-IG found that DCMA failed to adequately verify corrective actions or to adequately document DCMA’s reasons for disagreeing with DCAA. DCMA likely will carefully scrutinize planned contractor corrective actions in response to any significant deficiency finding for proof of implementation. Also, DCMA may be less willing to disagree with DCAA on business system findings without a sufficient rationale. Contractors as a result should be prepared to provide a complete and thorough explanation to DCMA in response to any initial determination of significant deficiencies that DCMA can use to justify any disagreement with DCAA.