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Navigating Complexities | The CARES Act and 3610 Guidance for the Intelligence Community

Guidance for the Intelligence Community is always changing. Yet currently those changes seem to be in hyper-drive. Luckily, we have experts like Amy Hernandez at BOOST LLC and partners like Pete Ragone from the SC&H Group to help us navigate these waters.

In an information-packed hour-long virtual discussion, Amy and Pete walked attendees through the top questions (and answers) they’ve received regarding this spring’s pressing changes as they pertain to the Intelligence Community. Below, you’ll find some of what they discussed. For the full discussion, please visit the webinar replay here.

Where do we stand in regard to PPP/Tax Credits vs. Class Deviation 3610?
Questions and dilemmas abound. Amy & Pete advised clients in the intel space that they may be able to invoice regarding lost time. Many contractors wanted to apply both the PPP Loan and the Class Deviation 3610. Yet, the CARES Act  did not fill the gap of March 13th-March 27th (as of May 28th) when many contractors were suddenly not able to work at their assigned location in support of Government programs.  Unfortunately, you are unable to invoice under 3610 and take the PPP loan or tax credit. It’s one or the other. If you take the tax credit or PPP, you won’t get 3610. But stay tuned, this could be modified as updated guidance related to the CARES Act is released in the coming weeks.


What key guidance has come out relating to 3610?
Key guidance posted on May 18th includes an overarching implementation guidance and checklist (with instructions). The guidance references that contractors can be reimbursed at their bill rates, which include profit. However, companies have to certify costs without profit for reimbursement.  When seeking reimbursement, contractors are effectively having to disclose profit to the government and primes. Those without cost-plus contracts may not have fully-FAR-31-compliant cost accounting systems (which best practice says you should). In the long run, this may change the landscape for the IC in billing and proposals going forward due to the fact that 3610 is only reimbursing costs for 2020. The worry is that in the next option year negotiations may be adversely affected, given that companies invoicing under 3610 have now informed customers/primes what their profit is on individual labor rates.

What are the cost accounting implications of invoicing under 3610?
If you’re having to track costs by contract, you need to make sure you have a separate time charge/leave code for COVID Leave or however you’re tracking work changes due to the pandemic. Most banks are sending PPP funds to a separate account, to assist with tracking as everything needs to be specifically tagged in regard to these funds. If you’re able to invoice under 3610, leave recorded as fringe costs do not stay as fringe, they need to be reclassified as direct labor once invoiced. We repeat, once you invoice it is no longer fringe, but a direct cost under that contract. Those costs can only be billed under that contract, by FAR definition it becomes a direct cost. When calculating your indirect cost rates, ensure that COVID costs invoiced under 3610 are removed from the fringe pool. (Check out the video for some of the more in-the-weeds, guidance for your chart of accounts.)

What are potential future contracting implications once things return to “normal”?
Depending on the funding of certain programs, there may be more limited additional 3610 availability. They will be funded but increases to contract funding will need to be priced out and supported. Short term, the government will continue with current spending habits as the debt ceiling raises. In the long term, there may be some tightening of funding on the horizon. Be prepared for a higher likelihood of justification for pricing going forward. To prepare, document, document, document. This exercise requires businesses to have elements of a compliant accounting system.

Action Items:

  • Have a good, clean accounting system.
  • Determine your financial health by contract and your business as a whole when deciding which funding/opportunities to take.

If you find yourself looking for additional guidance, a resource for implementing compliant accounting systems, or other questions regarding the most up-to-date released guidance, let’s connect. Our BOOST experts can get the information you need or connect you with our smart partners, like Pete, who have a breadth of knowledge in these areas.

DCAA, Part II

(As promised, here’s the Part II to “DCAA Trends in 2020“)

We’re preparing to make a bold statement that is practically blasphemy in our industry and especially with what BOOST does.

Care less about DCAA compliance and more about financial acumen.

There.  We said it.  Here’s what we mean and our rationale:

As we learned in the seminar briefing from DCAA earlier, small GovCons between $5-$50M have a 5% chance of being audited on your incurred cost submission.  Smaller GovCons (under $5M) have ½ of 1% chance.  In general, if you submit the paperwork on time (ICS, forward pricing), you aren’t getting audited.  Especially if you are going after prime work that is T&M or FFP (which most people are).  So why do we hit people over the head with “you must be DCAA compliant” time and time again?  Why do we scare off non-traditional companies who may consider playing in the federal space?  We hit them over the head with FAR and cite it as a reason to drive a ton of changes.

Here is what we think is more important:

  • Profitability
    Are you in the green and have long-term positive net cashflow?  This is all your banker cares about.  Are you a safe bet to lend money to?  If you aren’t making money, why are you in business?  (Note to reader: this is our completely biased view that you should run companies to make money.  None of this “operate in business for years without a profit to show for it.”  Not very Silicon Valley of us, but hey, we’re capitalist!).
  • Competent Financials
    Does your balance sheet balance?  No seriously…this is a thing!  Does your P&L look reasonable and is it prepared in a logical manner?  Are you using accrual basis accounting?  Did your 18-year-old nephew/neighbor/spouse do your QuickBooks setup without any understanding of the federal market?
  • Job Cost Accounting
    Do you know your gross margin and profitability by project/customer?  Do you know and track your indirect rates?
  • Pre-award Surveys (i.e. 1408’s)
    This is way more important in our mind. Can you pass the audit to win the work?  To lose revenue or new opportunities simply because you don’t have your financials in order absolutely blows our mind.  Do you know how hard it is to win work as a prime?  Good grief, do not lose it on a technicality!

We view the above as the floor in terms of expectations.  If you can’t pull it together, you are dead in the water.  We’ve seen companies go out of business as they didn’t manage their wrap rates or their profitability.  This market is uber competitive and if you can’t win from a cost perspective, you will never grow.

Now that we’ve effectively scared the pants off of you (and if we didn’t it had better be because you are doing all of the above, and more) we can provide you with a solution. You guessed it, BOOST!  Our compliance and accounting experts have years of experience keeping all of the ducks in a row. Visit us at www.BOOSTLLC.net/consultation and let’s get the important things in order.

DCAA Compliance for Small Businesses

As a small govcon have you ever thought…do I really need to be DCAA compliant? What if I’m “just a subcontractor” or “too small that DCAA will never notice me”?
We hear the following from companies more often then they’d like to admit:

  • It’s so complicated to get DCAA compliant (insert the eye roll and swipe across the forehead)
  • It’s such as hassle, I’ll do it when we get bigger (the procrastinator)
  • I have both commercial and government business, so the govcon piece won’t get noticed (I’m awesome and therefore the rules don’t apply)
  • It’s too expensive (cheap catches up to you)
  • I only have FFP and T&M contracts, so I won’t get audited (wrong!)
  • If I fail an audit, I’ll get excused because I’m a small business (nope, the small business card doesn’t work with DCAA)

To these “excuses” our advice is…

Get DCAA compliant and now!

Here’s why:

• It’s not as complicated as what you think.
There four primary components to being DCAA compliant – chart of accounts, timekeeping, forward pricing and policies and procedures. No one accounting system is deemed DCAA compliant.  It’s all about how your system is configured and your policies and procedures. A professional firm who knows DCAA compliant accounting is necessary to get the work done right…the first time.

• Small = less $ to become compliant.
Design a system that scales with you and the savings will be impressive. Retrofitting a large existing system to be DCAA compliant is time consuming and expensive.  Don’t get lazy – get it done when you are small.

• It’s a Pass/Fail test.
The is no B or C grade. You either pass or you fail.  Failing costs money and more money than it takes to preemptively become DCAA compliant.

• Timekeeping is like eating healthy.
It’s all about behavior modification. It takes daily reminders to establish healthy eating habits and it is the same for timekeeping. Additionally, it’s the most critical component of the DCAA audit.  Establishing solid policies and procedures for timekeeping when you are small is the easiest way to establish behaviors and set the tone for the critical importance of timekeeping.  Get HR involved because timekeeping should be in your employee handbook.  Educate employees on why timekeeping is important.

• Improve your dating profile.
Teaming partners, especially large integrators, like to work with small businesses that are DCAA compliant. You might not have been audited yet, but you are prepared in case you do and that is half of the battle.

Bottom line – get DCAA compliant now!
BOOST can help and it’s one of our favorite accounting projects. Well, we have lots of favorites, but this one is rewarding and we actually like doing it!  So, now go get healthy, change your behavior, spend some money in order to save some money and prepare for the inevitable.

What is a CPSR and Why Should You Care?

We recently told you about the Contractor Purchasing System Review (CPSR) process, and today we will (attempt to) convince you to care about this mega-compliance hurdle. If you want to read more about a CPSR, check out our white paper here.

There appears to be a trend in government evaluations looking for CPSR compliant contractors. CPSR compliance was an extra 500 points for the recent OASIS bid.  Many of our competitors will happily sell you a CPSR package without blinking at the cost or whether you actually needed it.

Who needs CPSR?
First, the main factor we tell our clients is to assess how much subcontracting work they do.  If your business weighs heavily on issuing a myriad of subcontracts or large procurements in support of your prime contract awards, then you have checked the first box to “needing” a CPSR compliance plan.  The remaining boxes are comprehensive.

Second, if a majority of your work is with the DoD, you may want to consider checking out DFARS 252. 252.244-7001, the regulatory birth of what a CPSR compliant system looks like. Finally, if your contract says you have to be CPSR compliant – we hope you already have systems in place to pass an audit before signing the dotted line.

Finally, most organizations do not like or want a CPSR compliance plan because of the heavy administrative burden it places on corporate processes.  Think about the last time you waited for a large GovCon to issue you a subcontract that was allegedly “on fire.”  In most cases, the subcontractor is issued a letter subcontract or works at-risk with an authorization to proceed (also part of the CPSR compliant program) before the “real” subcontract is issued.  This is because nearly all GovCons with CPSR compliance programs have to take several steps to coordinate awarding a procurement.  These steps were put in place to comply with CPSR requirements.

If we have not talked you out of it and you are ready to start the box-checking, administrative hurdles of CPSR land, consider an organization like BOOST that will tailor a compliance plan to fit your organization. We will not open a canned manual and serve it to you on a platter. We exist to add value. We can provide a customized CPSR plan; if you need it.