The DCMA is poised to reach further, faster and deeper into the defense contractor’s world with increased capacity and greater vigilance: you can run, but you cannot hide.
As the DCMA continues to expand its capacity after years of downsizing, it is also strengthening its ability to increase defense contract systems surveillance. Even now, at greater than pre-downsizing strength, the DCMA will continue to show significant capacity increases for the next three years. This will have serious consequences for DoD contractors. Some of them will suddenly find themselves on the hook to implement their first earned value system. Others will find they need to significantly upgrade existing systems to avoid penalties.
For some years, the DCMA has been rebuilding its workforce and expects to reach about 13,400 total civilian staff by 2015; an increase of 43 percent from its 9,300 staffing levels of 2008. To improve efficiency the agency has also instituted new, centralized policies and procedures to help standardize and streamline operations. There are also efforts in place to reduce some of the overlap between the functions of the DCMA and the DCAA in order to further improve efficiency. In short, with more resources, higher efficiency and tighter guidelines, DoD contractors should be ready for greater scrutiny.
One part of DCMA’s ramping up effort is the revised Earned Value Management Systems (EVMS) – Standard Surveillance Instruction (SSI), published in February 2012. This document reiterates the limits that trigger DCMA surveillance stating that:
“EVMS surveillance shall be conducted at all contractor sites where EVM systems are implemented for contracts valued over $20M containing the proper EVMS FAR or DFARS clause.” It goes on to say: “For DoD contractors, the absence of a Letter of Delegation (LOD), Advanced Agreement (AA), Letter of Acceptance (LOA), or agreement with the contractor shall not preclude the CMO from accomplishing EVM system surveillance as outlined in this instruction.”
This statement is significant. Mr. Bob Rodgers, a leading EVM expert with over 35 years experience in the defense contracting field explains it like this:
“Even if you’ve not agreed to a planned annual EVM surveillance of your contract, if you meet the EVM entrance criteria, local DCMA will be expected to establish and conduct routine surveillance; so get involved and be prepared.”
To give you a further example, section 1.3 of the SSI, Surveillance Schedule and Cycle states:
“The surveillance schedule shall reflect the five EVMS areas and associated guidelines to be reviewed, the programs/contracts involved, and the frequency of Standard Surveillance Reports (SSRs). The schedule shall be updated every year and includes surveillance activities covering one year. At a minimum, 16 high-risk guidelines (guidelines 1, 3, 6, 7, 8, 9, 10, 12, 16, 21, 23, 26, 27, 28, 30, 32) are evaluated each year with all 32 Guidelines evaluated within a 3 year period.”
Commenting on this section of the SSI, Mr. Rodgers had the following to say:
“DCMA has told you the frequency of its surveillance and their focus in terms of the specific ANSI-748 Guidelines that will be focused upon. Don’t be surprised.”
In summary, the whole pictures looks like this: The DCMA, along with the CMO and DCAA can audit any of a contractor’s six core business systems; namely accounting, estimating, materials management, earned value management, purchasing and property management. If deficiencies in any one of these six areas are found, 10% of the contract value can be withheld.
The DCAA are introducing new automating tools to allow an increase in audits to a larger number of companies. We can also expect these audits to be more thorough as these new tools allow the agency to track not just one transaction through a business system, as was historically the case, but to now audit the entire system.
The bottom line is that all DoD contractors should brace themselves for more frequent and thorough audits from these agencies. Things are going to get tougher over the coming months and a lot of contractors that haven’t yet appeared on the DCMA or DCAA’s radar should be preparing for EVMS compliance if they have $20M or greater cost-reimbursable programs on the books.
To view the February 2012 edition of the Standard Surveillance Instruction, click the following link.