PubKLaw recently met the DCAA Deputy General Counsel and discussed the DCAA’s December and January MRD audit guidance re expressly unallowable costs.  The DCAA comments are a prelude to the upcoming Annual Government Contracts Review and address the objective of the audit guidance as well as recent criticism received from industry and the legal community.

A few initial observations:

  1. The third para of the answer to the first question reads as though the objective of the guidance was to better define and identify situations where a cost would be determined by both the DCAA and DCMA to be expressly unallowable.  As such, this would reduce the number of situations where a DCAA recommended penalty was subsequently reversed or not sustained by the CO.  In other words, the DCAA success rate should increase as both agencies are now playing from a set of definitions that were developed by both parties.
  2. I am not an attorney; however, re the Emerson decision used by the DCAA to support their guidance, the standard drawn from that case appears to me to be uncertain and subjective.  The decision states that the unallowability of a cost is “unmistakable to any person possessing a rudimentary familiarity with the English language and principles of deductive reasoning.”  Under this standard, we are relying on the DCAA to assess a contractor’s ‘ rudimentary familiarity with the English language’ and ‘deductive reasoning’ skills’?  Sounds subjective and open to auditor interpretation.

The discussion concludes with comments from the DCAA that the current audit guidance will likely evolve based on relevant court cases and further coordination with industry and other agencies.