DCAA Audit Alert

August 21, 2014

In May of this year, the DCAA issued an Audit Alert to provide additional information for auditors to consider when they identify employees performing on Time and Material (T&M) contracts who do not meet the labor qualifications set forth in the contract.

Most contracts do not specifically describe the labor qualifications for individuals performing on contracts.  The expectation of all parties is that the employees are qualified and competent for the labor tasks required to fulfill the scope of contract.  When a contract is specific with qualifications for direct labor individuals such as education degree, skill, or professional certification, then a contractor must comply with the terms of the contract.

You may run into the situation (employee loss) where you have to substitute a person who may be lacking some element of the labor qualification but is otherwise competent.  It is always best to communicate with the Contracting Officer (CO) as this official is empowered to specifically authorize the labor of individuals who do not possess the required qualification specified in the contract.  If possible, be proactive and get the authorization ahead of time.  Always get written authorization (an e-mail to the contractor’s contract/program manager specifically stating what work performed by employees who did not meet the qualifications specified in the contract is now being authorized for payment). Keep the email in the contract folder.  Although Contracting Officer can give specific authorization after delivery of the work it is better to make the CO aware as early as possible.

Always be aware of contract requirements specifically relating to labor qualifications when specified by the contract.  You run the risk that utilizing non-qualified labor will cause the DCAA to question labor hours incurred.  If a material amount of T&M billings include hours that do not meet the labor qualifications specified in the contract, DCAA may cite you for a significant business system deficiency related to DFARS 252.242-7006(c)(12).