On March 13, 2009, Defense Contract Audit Agency (DCAA) revised its procedures for reporting certain "unsatisfactory conditions" related to the actions of Government officials (e.g., Contracting Officers). Under the revised procedures, certain actions by Government officials are now to be reported directly to the Department of Defense Inspector General (DoD IG), rather than elevated through the official's management chain, as had previously been DCAA's process.

Actions reportable to the DoD IG include those that "appear to reflect mismanagement, a failure to comply with specific regulatory requirements or gross negligence in fulfilling his or her responsibility that result in substantial harm to the Government or taxpayers, or that frustrate public policy." In announcing the policy change, DCAA expressly recognized that " [c]ontracting officers have wide authority to make decisions regarding contract matters" and that "DCAA auditors act as advisors to contracting officers." But the new rule, as embodied in revised CAM Section 4-804, along with its subjective standard for determining whether a contracting officer's discretionary decision reflects "mismanagement" or could result in "harm to the Government or taxpayers" or "frustrate public policy," could have a significant impact on contracting officers' willingness to take positions contrary to DCAA audit opinions and recommendations.

In light of this change, and other recent changes to DCAA audit policy (see Government Contracts Issue Update article ) it may be prudent for contractors themselves to consider changes to the way in which they respond to DCAA audits and reviews. For example, more active engagement with auditors, and responsiveness to document requests, may promote more favorable DCAA recommendations in the first instance. At the same time contractors should, where appropriate, actively work to keep their contracting officers informed of issues as they arise during the audit process. By educating the contracting officer on the contractor's "side of the story" in real time, the contracting officer may be in a better position to take a contrary stance on a DCAA recommendation. By waiting to engage the contracting officer until after a Form 1 has been issued, the contractor may forfeit a major opportunity to head off a dispute.

At a minimum, this change clearly indicates that, regardless of how good a company's relationship is with its contracting officer, in a dispute with DCAA, the contractor cannot take the contracting officer's support for granted.