The Defense Contract Audit Agency (DCAA) recently published a Memorandum for Regional Directors (MRD), titled "Audit Alert on Requirement for Prime Contractor Cost and Price Analyses," that provides answers to frequently asked auditor questions regarding cost and price analyses to establish the reasonableness of proposed subcontract prices. Importantly, the MRD states that DCAA auditors should proceed with subcontract proposal audits even if contractor cost or price analyses are not yet available. This should help mitigate what has been a continuing problem for prime contractors—long waits for DCAA audits of subcontractor proposals—and expedite contract price negotiations.
FAR 15.404-3(b) requires a prime contractor or subcontractor to establish the reasonableness of proposed subcontract prices and to provide supporting cost or price analyses in the proposal. In certain circumstances, a prime contractor may not be able to complete the cost or price analyses by the time it submits a proposal. In such cases, the prime contractor may include a matrix in the proposal identifying the dates by which it expects to receive subcontractor proposals. The MRD states that this type of matrix does not satisfy the requirement to submit supporting cost or price analyses in the proposal, and a DCAA auditor would mark the proposal as inadequate on grounds of incomplete cost or price analyses.
Nevertheless, the MRD provides that "this inadequacy alone will not result in the audit team's inability to proceed with the audit." In these situations, the audit team should proceed with the audit and notify the contracting officer that, if the cost or price analysis remains unavailable by the time the team's fieldwork is complete, the proposed subcontract costs will be classified as "unsupported." This guidance is a significant development for prime contractors who have struggled with DCAA auditors who refused to move forward with their audits of proposals until the subcontractor cost or price analyses are available. Rather than continuing to suffer delays caused by DCAA auditors declaring an entire proposal submission inadequate and refusing to accept audit assignments, prime contractors and their government agency customers likely can now rely on DCAA auditors to move forward with the audit process. Ultimately, this should reduce the amount of delay leading up to negotiation of contract prices.
Additionally, if a prime contractor is unable to complete its cost or price analysis, it should communicate its timetable for completing the analyses to both the auditors and the contracting officer. And, where a subcontractor fails to comply with a prime contractor's request for cost or pricing data, the MRD states that the prime should document its efforts to perform the required cost or price analysis under FAR 15.404-1(b) and coordinate with the contracting officer to obtain any necessary audit and/or pricing support.
If the prime contractor has completed the cost or price analyses of subcontract pricing, but an assist audit has not been completed, the MRD states that the auditors should classify the proposed subcontract costs as "unresolved." The MRD emphasizes the importance of auditors' "early engagement" with the contracting officer and prime contractors in facilitating assist audits and reducing unresolved subcontractor costs.
Overall, this MRD provides useful guidance to DCAA auditors regarding their approach to subcontract pricing audits in ways that likely help prime contractors by reducing obstacles to the negotiation of contract prices. By emphasizing early engagement by auditors and an obligation to move forward with subcontractor pricing audits even where the supporting cost or price analyses are incomplete, the MRD's guidance should increase auditors' willingness to proactively complete audits and ensure the consistent treatment of proposals submitted without cost or price analyses due to their unavailability.
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