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Government Contract Compliance


Yes I'm Compliant on a badge with lanyard to tell customers that you comply with important legal rules, regulations and guidelines to give them confidence that your practices are legitimate and safe

 Government Contract Compliance

What does it mean to be “compliant”?  In the case of Government contracts, who are you complying with?

Well, the answer to that might be easy. We comply with the Government’s rules and regulations.  But how do we do that? Who knows if we have been naughty or nice?  Do they come looking for us like the IRS and tell us to be prepared because we are getting audited?  Do we submit anything to anyone that holds us accountable on a regular basis?

Let’s look at this!

The Defense Contract Audit Agency (DCAA) is the cognizant audit agency that is responsible for performing audits to ensure Government compliance with FAR.  Predominantly, it is the Federal Acquisition Regulations (FAR) which determines how contracts with the Federal Government are regulated.  DCAA approves a company’s accounting system for the Federal Government.  DCAA approves a company’s indirect cost rates (Overhead, General Administration, Fringe Benefits, Material and Handling etc.).  What is the purpose of these audits?  Why do FAR regulations exist? FAR regulations exist to minimize the financial risk of the Government and thus, saving the taxpayers’ money.

Once an accounting system is approved, it is approved.  However, indirect cost rates will go across the desk of a Contracting Officer if you bid on Requests for Proposals. How does the Contracting Officer determine that they are fair and reasonable? Why, they are reviewed by DCAA by request of the Contracting Officer!

So, our contracts go to DCAA for audits of indirect cost rates on a frequent basis if we are competing in the open Federal Government contract market.

This is all about being in compliance and the best way to be in compliance and to remain in compliance is to be proactive with the infrastructure of your business.  What does that mean?

It means that, from the very beginning of doing Federal Government contracts, you must set up your accounting system so that it will meet DCAA requirements.  How is this achieved?  You must seek a firm who is knowledgeable, and experienced about the FAR regulations.  Remember, Government contracting is a special niche which requires customized and flexible solutions for the technical issues that comes with government cost accounting.

And what about Indirect Cost Rates?

The important thing to remember is that a small business will have rates that go up and down a lot in the beginning. You must calculate your indirect cost rates as it is stipulated in the FAR and bill your Prime contractor or the Government accordingly. Basically, it is simple. Your total costs are compared to those that are related to overhead as a percentage. The same is done for your other indirect costs.

These “cost pools” and their ratio to the expenses in each category of indirect costs are calculated as of the date of their implementation.  Those Indirect Cost Rates are then applied to labor costs.  A labor rate submitted on a Government proposal is then “burdened” in that it contains the applicable indirect costs and wrapped into a combined cost.  Rule #1, aside from accurate math calculations, is consistency. You must settle on the indirect rates you are going to use for a time period and ask the DCAA to make a determination as to their reasonableness.  Provision is made for the time constraints in proceeding with the process. Small businesses in particular with rates that go up and down need to revisit their rates annually.

This is where the term Provisional Indirect Cost Rates comes from. The DCAA will allow you to predict your actual indirect rate costs and make provisions for you to use those rates in your bids until they are audited and either accepted or adjusted. If an adjustment is necessary, then it is made before the contract is closed out.

DCAA will come to audit your accounting system. They determine that it can calculate and burden these indirect cost rates along with allocating, allowing or disallowing, all costs incurred to the contracts.  This will occur when you bid on contracts that are large enough to require an approved accounting system. As a subcontractor, a small business may not need to have an approved accounting system; that is until they work on a contract that is awarded over a certain amount.  This is determined by The FAR and the amount changes periodically.

This is just a short and vague description of the auditing functions of the Government but it makes two things very clear:

  1. Compliance from the beginning will save you much consternation later on.  This includes timekeeping compliance to support your costs.
  2. Understanding Cost Accounting Standards is of top priority for contractors and subcontractors.

Please refer to the following link for an excellent resource of information on this subject (given by DCAA).

Does this seem to be overwhelming?  Contact me and I will refer you to a Compliance Professional who is working with Contract Connections Administration Services.  Sign in to my website so that you will be informed of any changes in the area of this part of Federal Government contracting.

Cheryl Ann De Pace    / Mark Vilches       410-302-6251

Grow Your Business, Subcontracting!

verhuis1  Don’t Let This Be Your House

This house is the house of many who are struggling with their small businesses right now. I have sent my workers to take it away and replace it with a win-win house of prosperity.


This house is owned by someone who does subcontracts with the Government.  This is a win-win house of prosperity.

It may seem like a whole lot of extra trouble to do subcontracts with the Government but remember: The process for doing well with your subcontracts is easily taught. The government always pays its bills!

There is a big demand for GOOD subcontractors who know what they are doing.

You need to do a good job and build a significant past performance. The key is to manage your contracts like projects and to learn the metrics and analyses that keep things easily monitored and controlled.

And when you are at the end of the subcontract, you need to close it out. This means that it is done  and you are not billing incorrectly on your final payment.

So, you need to stay in compliance with the regulations regarding subcontracts in the Federal Acquisition Regulations (FAR).  This is accomplished by understanding the FAR and looking up the clauses that are given in the subcontract.

Subcontracting opportunities are listed on various databases. These databases exist in an effort to keep a supply of small businesses available for the Government and to be assured that small business will get 30% of the Government contracts awarded.  This is a regulation!

Past performance can be documented through a method called The Subcontract Project.  Anyone with project management experience can easily follow this methodology. Bid on opportunities and network with other small businesses. Involve yourself with forming teams of competent vendors that join together and create an effective work plan.  When you win, you will need to manage your subcontract from the very start.

With templates and good old fashioned hands on experience, you can become a certified subcontractor and this will make the Prime look twice at you in its hunt for small businesses to subcontract. After all, you have been trained and have demonstrated your knowledge of the things that matter the most to your Prime contractor.

Subcontracts are also negotiated regarding terms of payment. You can, as a subcontractor, negotiate for net 30 or even payment bimonthly based on the fact that you are a small business.

The Statement of Work is given to establish the explicit expectations of the work you will do. Follow it and your other terms and conditions. Then document your success!   The most important part of the proposal, aside from the actual financial bid, is proof that you have done well in the past and will continue to do well with the new assignments from the Prime contractor.

In order to prosper more in this economy, put yourself where the money is.  Understand that it is mandatory that you, as a small business, are sought to do work that the Government has to offer.

How long does it take to make the transition into Government subcontracting? Simple! It could be one day or months, depending upon your level of understanding of the process and the project of a subcontract.

You must be registered as being approved to do work for the Government by being registered on .  There are codes and other formalities but you can be guided through the steps move through it quickly. Once you are in , you are visible to all Primes looking for someone who does your work.

Subcontracting is said not to be as lucrative as being a Prime and contracting directly with the Government. In my opinion and with my experience, although your profit may be lower- in the long run, you will do well to become a popular subcontractor and reap the rewards of your past performance and naturally progress into the position of bidding directly to the Government.

Consistently working and consistently getting paid is a more lucrative choice.  There are no collection agencies necessary in your life when working for the Government. There is no advantage to withhold money from you in this industry as you are always working under strict regulations. So, you won’t be calling on collection agencies with Federal Government subcontracts.

Reach out to me if you are interested in The Subcontract Project class. Sign into my website at .  Dates and times will be sent to you.


Contract Connections Administration Services, LLC


Cheryl Ann De Pace, Director of Operations

The Subcontract Project

Contract Tracking        +        Financial Tracking     =          Closeout

Watch a video on Closeouts

Here is a very simplified formula for the process of a subcontract.  There are Terms and Conditions to follow (Contract Tracking) and there is your Funding (Financial Tracking).  Lastly, there is the Closeout when you have performed a reconciliation of your records with the Prime contractor’s records and you have a complete record of the administrative details of the contract.

There is a lot that goes along with this simple diagram. As you can see, there is a starting point that leads to a closure of the contract.  The contract has been initiated; it has been administrated, has expired and is now over. Both parties agree that the contract has come to its end without any miscalculations and with a delivery of the products or services in a satisfactory manner.

If you remember this diagram, you can use it to simplify your filing system and your process.

It is true that much has to transpire between the award and the closeout.  This is where your ability to remain organized and to document all conversations during the execution is of paramount importance.  Within the Financial Tracking is the need to apply indirect rates to the billing under circumstances and in most cases a fee percentage.  Fluctuations in this area are typically caused by changes in the indirect rates which apply across the costs as they are forecasted and must be approved.  Indirect rates are the percentages applied to the costs according to overhead and fringe predominantly.  With an approved accounting system, you do have the option to fix the rates for the contract and not delay the closeout for approval and adjustment.  So, with everything else tracked and all terms and conditions met, the closeout becomes the unpopular task of the process of a subcontract.

My recommendation is that you start documenting your process from the very beginning by utilizing a uniform format that pulls your project together in a linear fashion. If you have not had instruction in project management, I recommend a class that explains the principles and the stages of a project. Learn the tracking of a project. Organize what you do, religiously.  If it takes a little longer on the front end to organize your files and follow a consistent path, do it. It is well worth the effort.  Simplify, simplify, simplify.

Lastly, some words on the Federal Acquisition Regulations (the FAR):

Read the FAR Clauses associated with your subcontract. These have been passed down from the Prime contractor without explanation or clarification. You must look them up and read them and note them. This may seem daunting as the FAR is a very large body of regulations.  This is where you set up your file for tracking and note what needs to be considered part of the terms and conditions of your subcontract.  The individual who read the RFP became well versed in these regulations so that is the individual who can be most helpful.  Before you were awarded your subcontract you did a proposal in consideration of all these clauses.

In financial business settings, there are products that have different guidelines.  The underwriter of a financial product application has to know the product description to be effective. The FAR has a similar application. It is not uncommon for companies to write their own product description manual in order to have a good reference tool.  You can do this with the FAR.  Create a manual that has the primary sections of the regulations and then break it down into sections for the “parts” you may need to look for.  This is a project in itself but a good administrative support person can do this and it is well worth the effort. Then you have your guidelines that change.  These become this individual’s focus.

To summarize:

You may ask why someone would need to be so fastidious about tracking the projects you call your subcontracts.

If you are armed with order, consistency, good tracking, and easy references- subcontracting with anyone will be much easier.

The answer is simple and mitigates your risk in not developing a good past performance.

The better you are at organizing and tracking your subcontracts, the better you will be in the end when it is time to do a closeout.  Consider that the Closeout of the contract is the most important element of your project. It is the most difficult too.

Therefore, the simple diagram above can truly represent the simplicity of it all and that is what this blog is all about; keeping it simple.



Cheryl Ann De Pace


Your Closeouts – Remember Those?


I am the File Queen for CCAS, LLC. I am hidden in your tallest stacks of 5- year-old files. I eliminate them and create order and good audits. Oh, do I love thee. Let me tell the ways:

1. I list every file you have with their status in a spreadsheet so I can kidnap your files and hold them with me. I become the guard and you need only to do a Control-Find to see if I have a file.

2. As you hold the list on your computer, you will receive updates as the closeouts slowly take shape and you are in need of a filing protocol. Order. We need order so that the forms can be received and filed and the files can be plucked from the pile and get their “freedom” stamped, “CLOSED”.

3. The close out of a Federal Government contract or subcontract revolves around problem solving. Whatever is needed for the actual close out brings about questions and research and communications with the past. This is not a fast process. Financially speaking; the file needs to be reconciled like its progress reports that are merely monthly reconciliations. If you follow a good progress reporting process monthly, you will find that the closeout takes form on its own. That is my secret. It is like putting your finger on the pulse of the file each month and then you record the vital signs on a spreadsheet with the same entries for a high level comparison. This comparison is done with correct data.

4. Keep a checklist of what you need to obtain for the file. Don’t use a checklist that asks you questions. The questions should be in your head and creating a synergy, a feeling for the file. But you need to bet detailed and concise when you are collecting the forms you need. You need to hear from the Program Manager or the Principal Investigator. You need to hear from the Vendor. And finally you need to hear from your accounting department or access the database of the financial course of the contract.

5. The emails are kept and the phone calls are noted. The process is not boring and it is full bodied and time consuming. But…

…imagine this…
You have a contract with a University that you know from the past. You want to know more to manage the contract and you want to see the old file. You go to a file cabinet and follow the nomenclature to find it. Not a single file is out of place or there is a card place holder where it may have been borrowed by another. You open the file and everything is in the same order you expect in any of the files. You are instantly aware of the contract’s history and contacts. There is a rating of the contractor. You know they will be weak in providing pricing. You make some decisions regarding how you will manage the file…to include a calculator made for the contractor to use when you need progress from them.

Meanwhile, a contract period of performance has just ended. It is time for the file to move through the process to go to the closed files and join them. A process is used by following a simple checklist and the knowledge of the contract closeout process. The questions that you are supposed to be asking are those that will lead to healthy audit findings. You have a special person who knows all about closeouts and you feel confident that they will close out the file adequately. Nothing is piling up and rotting in the back room! There are no mysterious archives of files that never seem to look as nice as the contracts in process. No more!

When I started my consulting business, I had put in 12 years of doing a lot of contracts and subcontracts. I have, at any given time, as I review a file: millions of questions that come from my experience. I know where to start and I know when I have truly completed the closeout.

But my clients know that closeouts are typically considered the most unpleasant contract action. They know that it is something that can be done at a later time in most cases. Do they acknowledge that they need to be taken care of sooner than later? What do the auditors want to see? When will they come to see my files? Can I hire a temp to do the close outs like an administrator who then relies on the Contract Administrator for an understanding of the story of the file?

I recommend that you hire a specialist and clear out the backlog so that the closeouts may then be maintained by all those who use the files. I recommend someone who can go right to the bones of the contract and the history and that requires experience. Every single contract is different. Every single close out is different.

So, the Universe has put me in the midst of many closeout files. I have other things to do and I know too much to overlook anything that may come up negatively in an audit. After doing about 300+- of them, I have encountered many interesting situations. Closeouts are more interesting than contract definitization or putting together negotiated terms and conditions. Closeouts are an administrator’s final analysis and it takes an individual who knows them from soup to nuts.

Call me and let’s discuss your closeouts if you need to take control of them. I will come to work on your site and change that part of your world! And I am smiling about that because I enjoy it.

Are you ready for an audit of your expired contracts? Are you able to read and utilize your history with your vendors? Isn’t utilization of your history an excellent tool for subcontracting and teaming? Do you want an expert to come in and put order into the cabinets and clarity in your files?

Call me to discuss this at 410-302-6251.
Classes are available in closeouts also.            cartoon-apple-8[1]