Although DoD agreement officers awarded OTs for prototypes in accordance with the U.S.C., additional OT policies are needed. Specifically, we reviewed 34 prototype OT awards, valued at $5.0 billion, and found agreement officers did not always:
- verify the status of NDCs [nontraditional defense contractors] because there is no requirement for agreement officers to do so;
- validate NDCs participating in prototype awards to a significant extent actually completed the significant work because there is no requirement for the agreement officers to validate the work performed by the NDC throughout the project; or
- approve costs incurred prior to award or appropriately award resource share OTs because the agreement officers did not comply with the U.S.C. and compliance with the OT Guide is not a requirement.
I think a key statement there is that agreements officers were following the statute, but maybe not all the best practices in guidance. They accepted contractor statements of nontraditional status rather than verifying. I’ve never heard of a registry that lists all traditional defense contractors, which by definition are entities that have not performed on a Cost Accounting Standard, or CAS, covered contract for one year prior to the issuance of the solicitation.
Dispute over “Nontraditional”
That definition is also makes it difficult to track and leads to one of the DoDIG’s complaints. They found instances of a traditional contractors using its own subsidiary as a nontraditional to meet the requirements for an OT award.
The definition of nontraditional simply states “an entity” that has not performed on CAS-covered contract, and entity I think is a more nebulous term that often means business unit or company. DoDIG called this a “loophole.”
But the whole point of siloing a business unit for commercial is that it doesn’t fall into the compliance trap, resulting in non-competitive cost structures. So DoDIG is saying these siloed commercial units can’t be considered nontraditional for purposes of OTs.
If taken to the logical conclusion, DoDIG is arguing that a business unit with no CAS-covered contracts — but is owned by a traditional contractor — could not take advantage of DFARS 212.102, which defines any supply or service provided by a nontraditional defense contractor to be a commercial item, and therefore able to use FAR 12. (Moreover, DFARS 252.215-7013 exempts nontraditional defense contractors from certified cost or pricing data.)
Cost Sharing
Another interesting point is the validation of cost sharing on the part of the contractor receiving the OT. DoDIG states that contractors cannot proposed costs incurred before the award without express permission.
However, traditional contractors with audited IRAD accounts have a choice: they can expense the IRAD costs as an allowable cost on contract G&A rates (as usual), or it can be included as a valid cost under a subsequent OT contract. So that seems to be one of these express permission scenarios, but is interesting nonetheless and may give primes a bit of an advantage if they compete against nontraditionals.
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