The Section 809 Panel Overview Resource

About the 809 Panel

The Section 809 Panel was established by Congress in the FY 2016 NDAA to address issues with the way DoD buys what it needs to equip its warfighters. Since its inception, the panel has published an Interim Report and three-volume Final Report, containing a total of 98 recommendations aimed at changing the overall structure and operations of defense acquisition both strategically and tactically. 

Some changes hold potential for immediate effect, such as those that remove unnecessary layers of approval in the many steps contracting officers and program managers must take and remove unnecessary and redundant reporting requirements. Other changes require a large shift in how the system operates, such as buying readily available products and services in a manner similar to the private sector and managing capabilities from a portfolio, rather than program, perspective. Such an array of proposed improvements offers short-term gains that will help inspire enthusiasm, as well as a commitment to achieving the long-term systemic changes and supporting continuous improvement.

What are the goals of Section 809 Panel?

The goals of the Section 809 Panel, as outlined in the National Defense Authorization Act, include the following:

  • Review the acquisition regulations applicable to DoD with a view toward streamlining and improving the efficiency and effectiveness of the defense acquisition process and maintaining defense technology advantage.
  • Establish and administer appropriate buyer and seller relationships in the procurement system.
  • Improve the functioning of the acquisition system.
  • Ensure the continuing financial and ethical integrity of defense procurement programs.
  • Protect the best interests of DoD.
  • Eliminate any regulations that are unnecessary for the purposes described.

The Section 809 Panel, tasked with identifying ways to streamline and improve the defense acquisition system, has made a total 98 recommendations, encompassing both evolutionary and revolutionary change.

Learn more – visit section809panel.org

809 Panel Report and History Below

The 809 Panel released yesterday their final report

Volume 3 of the Final Report represents the culmination of more than 2 years of collective brainstorming, engagement, and intense research about how to change defense acquisition from an outdated, industrial bureaucracy to a more streamlined, agile system able to evolve in sync with the speed of technology innovation.

Our Thoughts

A lot of good recommendations in Section 6 – Streamlining and Improving Compliance. Top of the list is revision to the current 18 DFARS Accounting System adequacy criteria. The proposed revision would eliminate the 18 subjective criteria and replace with 7 new objective criteria. Section 6 also includes a DoD Professional Practice Guide with several important auditing standards and concepts that would align the government contract auditing process more with traditional financial statement auditing methods and generally accepting auditing standards industry practices.

Read the Reports here:

Volume 3 Report – Part 1

Volume 3 Report – Part 2

Volume 3 Summarized Recommendations

HISTORICAL:

The 809 Panel released  Volume 1 Report

THE SECTION 809 PANEL’S VOLUME 1 REPORT is the first of three volumes and continues the panel’s mandate for making recommendations to streamline acquisition. To date, the efforts of the panel have proven highly productive, and outreach efforts continue to generate hundreds of ideas for improving acquisition that the panel is diligently investigating. The May 2017 Section 809 Panel Interim Report provided three statutory recommendations that were all enacted into law in the FY 2018 NDAA. Through these actions, Congress demonstrated its willingness to expedite the panel’s recommendations to improve the efficiency and effectiveness of the DoD acquisition process. In the coming months, the panel will continue to be a partner to Congress, DoD, and industry in support of further efforts to streamline acquisition to better enable DoD to meet its strategic warfighting goals. One key area of work for the Section 809 Panel is the conceptualizing of a Dynamic Marketplace framework—an outcome-based acquisition process for providing DoD simplified access to the global marketplace. The panel’s research shows that the current acquisition process is an obstacle to DoD’s ability to access a marketplace that has moved far beyond the traditional defense industrial base of the Cold War era. Accordingly, the Section 809 Panel has started to develop a new framework that can harness the benefits from the global marketplace of ideas, solutions, products, and services at a speed that is closer to real-time than the current acquisition process allows (see the Volume 1 Report for details). The Volume 1 Report contains recommendations to update the process by which DoD acquires IT business systems, to streamline DoD’s cumbersome auditing requirements, to address challenges in how the small business community and DoD interact, to update commercial buying, to clarify the definition of personal and nonpersonal services, to remove statutory requirements for 13 acquisition-related DoD offices, and to repeal 20 acquisition-related statutory reporting requirements. In all cases, the Section 809 Panel has laid out the rationale for change, and followed up with specific, actionable, statutory and regulatory language.

The 809 Panel released June Volume 2 Report

This Volume 2 Report builds on the Section 809 Panel’s previous policy recommendations by offering an introductory paper on the tenets of a viable defense acquisition system aimed at improving the existing over-managed system to more readily meet warfighter needs. This report represents an overview of the state of the system now and offers a vision for the future. It will also guide the panel’s specific recommendations for a new defense acquisition vision cemented around portfolio capabilities and tools and resources designed to empower users and product owners to manage programs more effectively, which will be published in Volume 3. Volume 2 also contains recommendations related to the acquisition workforce, commercial source selection, the Cost Accounting Standards Board, and services contracting as well as further discussion of the Dynamic Marketplace concept and a section on decluttering Title 10 of the U.S Code.

The 809 Panel released their Volume 1 Report 2/1/2018

THE SECTION 809 PANEL’S VOLUME 1 REPORT is the first of three volumes and continues the panel’s mandate for making recommendations to streamline acquisition. To date, the efforts of the panel have proven highly productive, and outreach efforts continue to generate hundreds of ideas for improving acquisition that the panel is diligently investigating. The May 2017 Section 809 Panel Interim Report provided three statutory recommendations that were all enacted into law in the FY 2018 NDAA. Through these actions, Congress demonstrated its willingness to expedite the panel’s recommendations to improve the efficiency and effectiveness of the DoD acquisition process. In the coming months, the panel will continue to be a partner to Congress, DoD, and industry in support of further efforts to streamline acquisition to better enable DoD to meet its strategic warfighting goals. One key area of work for the Section 809 Panel is the conceptualizing of a Dynamic Marketplace framework—an outcome-based acquisition process for providing DoD simplified access to the global marketplace. The panel’s research shows that the current acquisition process is an obstacle to DoD’s ability to access a marketplace that has moved far beyond the traditional defense industrial base of the Cold War era. Accordingly, the Section 809 Panel has started to develop a new framework that can harness the benefits from the global marketplace of ideas, solutions, products, and services at a speed that is closer to real-time than the current acquisition process allows (see the Volume 1 Report for details). The Volume 1 Report contains recommendations to update the process by which DoD acquires IT business systems, to streamline DoD’s cumbersome auditing requirements, to address challenges in how the small business community and DoD interact, to update commercial buying, to clarify the definition of personal and nonpersonal services, to remove statutory requirements for 13 acquisition-related DoD offices, and to repeal 20 acquisition-related statutory reporting requirements. In all cases, the Section 809 Panel has laid out the rationale for change, and followed up with specific, actionable, statutory and regulatory language.

Read the Reports here:

Volume 1 Report

Volume 1 Summarized Recommendations

Section 809 Panel Advisory Report – Section 2 – Contract Compliance and Audit 2/7/2018

was Reported?

The Section 809 Advisory Panel, established under Section 809 of the National Defense Authorization Act (NDAA) for Fiscal Year 2016, issued January 31, 2018, their Volume 1 of 3 Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations (Report). The eight-section Report addresses various aspects of the Department of Defense (DoD) acquisition process and offers several conclusions and recommendations identifying opportunities for improvement across the overall acquisition spectrum.

The focus of this paper is Section 2 – Contract Compliance and Audit. Summarized below are six selected recommendations of the total 11 recommendations identified in Section 2 of the Report. The 11 recommendations pertain to current regulatory requirements and associated business practices of the Defense Contract Audit Agency (DCAA) and Defense Contract Management Agency (DCMA) relative to current contract audit, oversight and administration activities.

Several of the findings and recommendations included in the overall 11 have been previously identified through prior fiscal years’ NDAAs and/or the DoD rule-making process and the subject of public comments, discussions, or opinions. We have selected for discussion here six of the 11 recommendations that present somewhat of a new look and offer a different perspective to effect potential improvements to the DoD acquisition process compared to other initiatives previously vetted in prior NDAAs and/or DoD rules referenced above.

– DCAA’s Annual Report to Congress (Recommendation 6) – The Report criticizes the content and metrics that the DCAA reports annually to Congress. The Report states “Congress’s reporting requirement for DCAA lacks critical metrics to adequately measure DCAA’s performance.”

Substantive findings and recommendations noted in the Report include:

Reduction of, as the primary emphasis, reporting of DCAA’s questioned costs, sustained costs, and return on investment as it is misleading when not reported in conjunction with other performance metrics;
Utilization of a balanced scorecard approach to report other aspects of DCAA’s performance, including, among other things, i) on-time performance, ii) reasons for the differences between questioned and sustained costs, iii) survey results of buying commands’ and the DCMA’s views on the timeliness, quality and effectiveness of DCAA audits performed, and iv) costs to perform audits compared to sustained costs; and
Amendment, by the Legislative Branch, of 10 U.S.C. §2313a requiring the DCAA to report additional key metrics.
– Statutory Time Limits for DCAA Activities (Recommendation 8) – The Report criticizes the overall timeliness of the DCAA audit activities performed and notes various activities take too long and are initiated too late. Timely receipt of audits under statutorily mandated deadlines will improve the DoD’s effectiveness of various oversight activities. The Report states, “DCAA’s work is untimely, which causes delays in contract awards, as well as other negative effects on the contract life cycle, through andincluding contract closeout.”

Substantive findings and recommendations noted in the Report include:

Existence of requirements for independent public accountants to submit final audit reports within required timeframes – including both audits of i) private entities under Securities Exchange Commission deadlines and ii) public agencies under Chief Financial Officers Act of 1990 deadlines;
Existence of requirements for contractors to submit various reports and documents to the DCAA and DCMA within required statutory timeframes;
Identification of 11 specific DCAA oversight activities, three on-demand and eight predictable, for which statutory deadlines should be established;
Establishment of these deadlines by October 1, 2019; however, the DCMA and DCAA are encouraged to establish dates sooner;
Extension of established dates is permissible by contracting officers within a narrow group of three categories – if the extension is due to the contractor requested or delayed category, the extension cannot be granted without the contractor’s express knowledge; and
Amendment, by the Legislative Branch, of 10 U.S.C. §2313b(g) to include required reporting deadlines related to the 11 specific oversight activities referenced above.
– DCAA’s use of Independent Public Accounting (IPA) Firms to meet Time Limits (Recommendation 9) – The Report asserts the DCAA cannot eliminate its backlog of incurred cost proposal audits and meet its other oversight and reporting responsibilities without use of additional resources. The Report states, “DCAA needs additional resources to get and stay current with its oversight responsibilities.”

Substantive findings and recommendations noted in the Report include:

Establish use of IPAs by the DCAA to eliminate the incurred cost proposal audit backlog and allow continued support of other oversight and financial services activities;
Request increases in appropriated funding by the DCAA to Congress to allow for the DCAA to contract with IPAs;
Maintain availability of increased funding to the DCAA on a yearly basis, over a five-year period and starting in fiscal year 2019;
Establish authority of contracting officers to request from the DCAA services of IPAs to meet contracting officers’ needs;
Provision, by the Legislative Branch, of additional appropriated funding beyond the current DCAA budget to allow the DCAA to retain IPAs; and
Modification by the Executive Branch, of DoD Directive 5105.36 to enable the DCAA’s use of IPAs.
– Replace Accounting System Administration Adequacy Criteria (DFARS 252.242-7006 with an Internal Control Audit (Recommendation 10) – The Report asserts use of the existing 18 adequacy criteria contained in DFARS 252.242-7006 for purposes of assessing the adequacy and effectiveness of contractors’ accounting systems is inadequate. Rather, as prescribed in Section 893 of the NDAA for fiscal year 2017, the DoD should accept contractors’ third-party auditor internal control audits performed using the Sarbanes-Oxley (SOX) integrated framework approach as the baseline. The Report states, “The DoD is not obtaining timely assurance that internal controls for defense contractors’ accounting systems are properly designed and functioning. Ensuring effective internal controls is one of the most efficient ways to protect the government’s interest, reduce risk, and improve performance.”

Substantive findings and recommendations noted in the Report include:

Recognition that the accounting system is the most critical business system to ensure the government’s interests are protected;
Use by third-party auditors the SOX integrated audit framework as a baseline to measure contractors’ adequacy and effectiveness of internal controls to meet government contract audit objectives;
Revision by third-party auditors the SOX framework to address specific and unique accounting system internal control objectives and establish an internal control audit program based on objective and measurable criteria;
Replacement of the DFARS 18 adequacy criteria with the revised internal control audit program and conduct audits with use of third-party auditors, and
Revision by the Executive Branch, of DFARS 252.242-7006 to allow use of contractor performed internal audits.
– Incentivize Contractor Compliance through Robust Risk Assessment (Recommendation 14) – The Report suggests the DCAA could be more efficient with performance of their overall audit and oversight responsibilities with utilization of a more robust risk assessment program pertaining to their overall audit and workload planning. The Report states, “DCAA uses a simple risk assessment to prioritize workload. Because DCAA bears all oversight responsibilities regarding contractor costs and related business systems, DCAA needs a more robust risk assessment approach.”

Substantive findings and recommendations noted in the Report include:

Implementation by the DCAA of a more holistic risk-based assessment approach based on assignment of numeric weightings to specific fact-based risk considerations;
Addition by the DCAA of ten potential additional factors (beyond auditable dollar-volume (ADV) for consideration and analysis when performing contractor risk assessments, including, among other things, i) complexity of cost accounting structure, ii) government participation in indirect expense pools, iii) status of business systems, and iv) compliance with applicable Cost Accounting Standards requirements;
Potential re-designation of contractors, based on the results of the numeric weightings developed from the criteria above, into high, medium and low-risk categories different than previously designated categories based on the current ADV focused approach, and
Definitive recommendation by the Section 809 Panel regarding the potential ten additional risk assessment factors prior to its January 2019 sunset.
– Clarify Definition of an Adequate Incurred Cost Proposal (Recommendation 15) – The Report criticizes the DCAA’s audit of direct costs as a required procedure in conjunction with the overall audit of contractors’ final indirect cost rate proposals (also frequently known as final incurred cost proposals or incurred cost submissions). The Report asserts all the schedules currently ‘required’ and included in these proposals have no bearing on meeting the sole purpose of these proposals, which is, establishment of final indirect expense rates in accordance with FAR 42.702. The Report states “Many of the required elements of an adequate final indirect cost rate proposal have no bearing on calculating, understanding, auditing, and negotiating final indirect cost rates. This collection of unnecessary data has contributed to DCAA losing its focus on the purpose and scope of contractors’ final indirect cost rate proposal and has created unnecessary work for contractors, DCAA, and especially contracting officers.”

Substantive findings and recommendations noted in the Report include:

Clarify in the FAR that an incurred cost proposal is the same as a final indirect cost rate proposal;
Perform by DCAA audits of final indirect cost rate proposals in accordance with the intent of the FAR, and, exclude as a required procedure the audit of direct costs;
Redefinition by DCAA which schedules are required for submission in the final indirect cost rate proposal, and, designate as optional those schedules that do not relate to establishment of final indirect expense rates; and
Definition, by the Executive Branch, within FAR 52.216-7 that incurred cost proposal is synonymous with final indirect cost rate proposal and designate schedules I-M and O as optional.
What does this Mean?

The six recommendations discussed above make sense and offer practical and reasonable approaches to accomplishing the overall objective of the Section 809 Panel, i.e., streamline the DoD acquisition regulatory process and move to a more effective and efficient framework. Further, use of industry leading and long-established commercial business practices makes good sense.

Unfortunately, there is a twofold reality. First, as many of the recommendations can only be accomplished as a result of statutory or regulatory change, the corresponding timeline(s) associated with the legal or regulatory processes to allow implementation of these recommendations are likely, a way down the road. Second, some of the recommendations may be received as somewhat controversial and attract resistance; see, for example, recommendations 6, 8, 9, and 15. Recommendation 9 is likely the most controversial as the DCAA, based on recent public discussions and comments and congressional testimony (April 2017), clearly object to the use of IPAs for incurred cost audit purposes, let alone engaging the IPAs directly as recommendation 9 suggests.

Implementation of the above recommendations would be a welcomed change to the current government contracting state however, contractors should realize any real or substantive change will likely not be seen in the near term.

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