Contracting panel calls Defense oversight agencies’ relationship ‘dysfunctional’

Commissioners say poor contractor business systems slip through the cracks because the two agencies aren’t operating cohesively.

A lack of cooperation between the Defense Contract Management Agency and the Defense Contract Audit Agency is hindering the oversight of contractors' business systems, members of the Commission on Wartime Contracting said on Tuesday. A large portion of the commission's nearly six hour hearing on contractor business systems was spent highlighting what co-chairman Christopher Shays called the "dysfunctional" relationship between the two oversight agencies. DCAA is responsible for auditing contractors' purchasing, cost estimation and other business systems. But DCAA only has the authority to make recommendations for improvements based on its audits; DCMA ultimately decides whether shortcomings in a contractor's systems warrant withholding payments or disqualifying the company from contract awards.

In occasionally contentious questioning, members of the commission accused DCMA Executive Director for Contracts David Ricci of almost uniformly ignoring recommendations from DCAA with regard to the business systems of logistical support contractors Fluor Corp., KBR Inc. and DynCorp International.

"You have basically given me the impression that all of the inadequacies you've overruled -- particularly as it relates to these three contracts -- and that's stunning," Shays told Ricci. "I'm struck with the fact that there's a little bit of a gray area so you're going to make sure that you are totally on the contractor's side."

In many cases, Ricci said, the hands of DCMA and contracting officers are tied by a provision that allows a system to be deemed adequate if the contractor has submitted a corrective action plan. Additionally, DCMA can withhold payment only under certain types of contracts or if certain contract provisions are included, Ricci said.

"If this is unacceptable, and I think we all agree it is, I would need more authority maybe a contract clause that implements [the ability to withhold payments]," Ricci said. "I would also need a change to the regulatory direction that says submission of a corrective action plan is sufficient."

Ricci said he would pursue a policy that lays out the situations in which withholding payments from contractors with inadequate business systems would be appropriate. Jeffrey Parsons, executive director of the Army Contracting Command, said the existing standard and definitions of an adequate business system have not been properly vetted through the regulatory system.

"That's where some of the frustration lies for contracting officers," Parsons said. "You can read the DCMA opinion and the DCAA opinion and take a look at what's in the regulations and there's a lot of room for interpretation."

DCAA Director April Stephenson has said she'd like the agency's recommendations to be mandatory, but has since shifted her position. "I'd like there to be accountability when DCAA's findings are ignored or appear to be ignored," she said.

What Stephenson called the "disconnect" between the two agencies allows contractors that could have received a failing grade from DCAA to claim their business systems have been approved by the government, commissioner Clark Ervin said.

"It's not an issue of coordination between DCAA and DCMA; it sounds like you have lots of meetings," he said. "It's at the end of the day … DCMA calls the shots, and all too often DCMA deems these systems to be adequate and this allows contractors to play DCMA and DCAA against each other."

William Walter, KBR's senior vice president of government compliance who testified that the company's business systems were approved despite failing DCAA audits, said it is not the company's intent to play one agency off another.

"We're playing by the rules and we're trying our best to satisfy the DCAA auditors -- on the examples they present to us and with the corrective actions that we put into place -- that we're complying with the framework guidelines," he said.

Walter and executives from DynCorp and Fluor testified that they would prefer consistency.

"A single voice from the government would be a great improvement," said David Methot, executive director of compliance for Fluor's government group. "In my mind the issues we've had in the past fall into a subjective evaluation process that leads to differences of opinion between the contractor and the government and between two government agencies. A single voice would lead to more timely determinations of adequacy." Parsons said regulations on how to define an adequate business system and how to address inadequate systems should be clarified at the Defense secretary level.

Shays instructed DCMA and DCAA to report back to the commission in 60 days on how these issues are being resolved and put much of the burden on DCMA to find a resolution.

"Both of you up there, you're on the same team, but it doesn't sound like it and it doesn't look like it," Shays said. "With no disrespect to Mr. Ricci, we think there needs to be more adjustment on DCMA's part than on DCAA's part. I think that's fairly clear."