Many inquiries have been received through SCORE and Linked In regarding compliance in small business government contracting business systems. It seems the single word, "Compliance", implies many different things:
- Small Business wishes to know about compliance to assess the cost of doing business with the government, assure readiness and business system capability.
- Software Suppliers maintain they have compliant tools to achieve government contracting business management and wish to sell them.
- The Defense Contract Audit Agency (DCAA) has the mission to insure compliance with Cost Accounting Standards (CAS) under the Federal Acquisition Regulation.
- Defense Contract Management Area Office Fact Finding Teams wish to observe small business systems to determine if an enterprise is capable of pricing, job cost accounting and billing consistency.
- Prime Contractors wish to know if a subcontractor is compliant with FAR and CAS so related flow down clauses can be made part of contractual agreements.
The criteria for determining government contracting small business system "Compliance”, as discussed above, is met when:
1. The business system is unique to the company, and recognizes the way the firm is organized and the way it manufactures or delivers products, supplies or services. Each company does business in a slightly different way, performs services or delivers products with organizations that function in various manners and yet all ultimately meet Modified US Government Cost Accounting Standards (CAS) objectives by live data demonstrating consistency with regard to cost allocation to contract objectives in pricing, job cost accounting, billing and closeout.
2. The business system meets Modified Cost Accounting Standard (CAS) Coverage defined by the government is as follows:
Standard 9904.401, Consistency in Estimating, Accumulating, and Reporting Costs
Standard 9904.402, Consistency in Allocating Costs Incurred for the Same Purpose
Standard 9904.405, Accounting for Unallowable Costs
Standard 9904.406, Cost Accounting Standard—Cost Accounting Period
Modified, rather, than full, CAS coverage may be applied to a covered contract of less than $50 million awarded to a business unit that received less than $50 million in net CAS-covered awards in the immediately preceding cost accounting period.
The following article contains practical business system guidance regarding building a Modified CAS Coverage Small Business System for federal government contracting:
Read the above government requirements and business system development guidance, and then give your selected method of business management the Modified CAS litmus test. Make a judgment that it is the best for your company and try it out on DCAA. If they have problems with the approach you can adjust it.
The bottom line objective is that you wish government approval going forward so that your rates are accepted in proposals, your audits have a satisfactory outcome and you get paid when you submit a billing. Without those critical success factors the business cannot operate.