Prime contractors subject to the business system rules in DFARS 252.244-7001 Contractor Purchasing System Administration are required to establish and maintain an acceptable purchasing system. For the purchasing system to be acceptable, DFARS 252.244-7001(c)(23) requires the contractor to establish and maintain internal controls over subcontracting, including oversight and surveillance of subcontracted effort.
DFARS 252.244-7001(c)(16) requires the contractor to notify “the Government of the award of all subcontracts that contain the FAR and DFARS flowdown clauses that allow for Government audit of those subcontracts, and ensure the performance of audits of those subcontracts.” Under this requirement, the government is clearly responsible for the actual audit of the subcontracts.
FAR 42.202(e)(2) clearly states that prime contractors are responsible for managing subcontracts. This FAR section does not contain any language regarding audits of subcontracts. Nevertheless, DCAA has recently been interpreting FAR 42.202(e)(2) as a requirement for the prime contractor to audit the subcontracts. Despite the language in DFARS 252.244-7001(c)(16) related to government audits of subcontracts, DCMA appears to be supporting the DCAA position to make the prime contractor responsible for performing subcontract audits. DCMA Instruction 135, section 18.104.22.168 now states that prime contractors are responsible for auditing subcontracts and closing subcontract using procedures similar to those used by the government.
Additionally, the National Defense Authorization Act signed by the President in November 2015 contains a provision, in section 893, prohibiting DCAA from performing audit effort for non-DoD agencies until it is current on its incurred cost backlog. As a result, more pressure is being put on prime contractors to perform these audits. The Department of Energy has been including language in some prime contractor awards as part of a “Cooperative Audit Strategy” requiring the prime contractor to audit the subcontractor.
- GAGAS, AICPA, or IIA Compliant Subcontract Audits
- Purchasing/Subcontract Management Risk Analysis
- Subcontract Management Policies and Procedures Review and Development
- Purchasing and/or Subcontract Management Training
- Cost or Price Analysis
- Subcontract/Subrecipient Compliance Monitoring
- DCAA Audit Support
- Mock CPSR Audits
- Prime Contractor Subcontract Management, National Defense Authorization Act, Section 893 Fallout
- DCAA Rewrites FAR 42.202: Primes Now Responsible for Auditing Subcontractors
- Pressure on Prime Contractors Continues to Increase Relative to Subcontracts
- Whitepaper: What Are The Prime Contractor’s Risks Related to Subcontracts