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Government Contract Pricing Blog

Recognizing Today’s Contracting Business Systems and Compliance

Posted Jul 15, 2011  by  PROPRICER

Temecula, Calif. – July 15, 2011 – Due to ‘significant deficiencies’ discovered in a DCMA earned value management system audit, NAVSEA announced last month that it is penalizing shipbuilder Huntington Ingalls by withholding 5% of its progress payments on the $697 million ship building contract for the Arleigh Burke class destroyer. Unless Ingalls is able to quickly correct the deficiencies, the penalty could amount to tens of millions of dollars. The DCMA found ‘systemic and material internal control weaknesses” in 19 of the 32 earned value guidelines that crossed each of the five EVM areas.

The government’s action confirms DOD’s intent to use the payment withholding sanctions included in the May 2011 update to DFARS 252.242-7005. In addition to a company’s Earned Value Management System, the clause enables payment withholding penalties for significant deficiencies found in a company’s Material Management and Accounting System, Cost Accounting, Purchasing, Property Management and Cost Estimating System. If a company is notified of significant deficiencies in more than one business system audit, the withholding penalties could reach 10% of its progress payments, performance based payments and cost vouchers.

Companies need to know if their government contract or flow-down from a prime contractor make them subject to business system audits. Compliance with the six business system requirements can be proactive or reactive. When compliance consists of a corrective action plan in response to adverse audit findings and punitive payment withholding the costs are much greater.

By helping to reliably and consistently generate verifiable, supportable, documented and timely cost estimates PROPRICER software is an integral part of many companies’ compliant Cost Estimating System. PROPRICER software has helped companies prepare for Cost Estimating System audits and implement corrective action plans when deficiencies surface. For more information on how PROPRICER can increase proposal accuracy, efficiency, and productivity, please take a closer look by clicking here.

Topics: PROPRICER news, press release

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