ACAP Defense Acquisition and Cost Policy 2 — Questions and Answers
Question 1: What is the 'Defense Contract Audit Agency (DCAA)' and how does it support Army cost analysis?
- DCAA audits contractor accounting systems, incurred costs, and proposals to verify accuracy and reasonableness, providing the government with independent assurance of contractor financial data (Correct answer)
- DCAA prepares independent cost estimates for Army programs at each milestone
- DCAA manages the DACIMS database of historical contractor cost data
- DCAA oversees EVM implementation on all Army cost-plus contracts
Correct answer: DCAA audits contractor accounting systems, incurred costs, and proposals to verify accuracy and reasonableness, providing the government with independent assurance of contractor financial data
DCAA audits provide the Army with confidence that contractor-reported costs are accurate and that accounting systems are adequate, supporting both source selection and contract administration.
Question 2: What is 'should-cost management' under the Better Buying Power initiative and how does it differ from traditional cost estimating?
- Should-cost management challenges program and contractor teams to identify and achieve specific cost reduction targets, rather than simply predicting what costs will be (Correct answer)
- Should-cost management is an OSD mandate replacing all parametric cost models with engineering build-up
- Should-cost management is a procurement strategy limiting contractor fee to 10% of costs
- Should-cost management requires using CAPE's estimates instead of program office estimates
Correct answer: Should-cost management challenges program and contractor teams to identify and achieve specific cost reduction targets, rather than simply predicting what costs will be
Better Buying Power elevated should-cost from an occasional review to an ongoing management discipline, requiring program managers to actively drive costs down rather than accept historical cost trends.
Question 3: What does 'allowable cost' mean under FAR Part 31 in the context of cost-type Army contracts?
- A cost that is reasonable, allocable to the contract, conforms to applicable CAS standards, and is not expressly unallowable under FAR 31.201-6 (Correct answer)
- Any cost below the contract's negotiated ceiling price
- A cost that has been approved in advance by the contracting officer
- A cost that appears in the contractor's proposal and has not been challenged by DCAA
Correct answer: A cost that is reasonable, allocable to the contract, conforms to applicable CAS standards, and is not expressly unallowable under FAR 31.201-6
Allowability under FAR Part 31 determines what costs the government will reimburse on cost-type contracts; unallowable costs (e.g., entertainment, advertising) must be excluded from billings.
Question 4: What is 'cost realism analysis' and when is it performed during source selection?
- An assessment of whether proposed costs are realistic for the work, performed on cost-reimbursement proposals to determine the probable cost of contract performance (Correct answer)
- An analysis comparing offeror prices to determine the most competitive bid
- A review of proposed costs against the IGCE to identify any arithmetic errors
- An audit by DCAA of the contractor's accounting system before award
Correct answer: An assessment of whether proposed costs are realistic for the work, performed on cost-reimbursement proposals to determine the probable cost of contract performance
Cost realism is mandatory on cost-type solicitations; the government adjusts unrealistically low proposed costs to probable cost for evaluation purposes to avoid awarding to a contractor that cannot perform for the proposed amount.
Question 5: What is the 'Cost Accounting Standards (CAS)' and what is their purpose for Army contracts?
- CAS are standards issued by the CAS Board requiring defense contractors to consistently measure, assign, and allocate costs to government contracts, ensuring comparability and auditability (Correct answer)
- CAS are Army standards for preparing cost estimates in a consistent format
- CAS are GAAP accounting rules specifically applied to government contractors
- CAS determine which contract types (fixed-price vs. cost-plus) can be used on Army programs
Correct answer: CAS are standards issued by the CAS Board requiring defense contractors to consistently measure, assign, and allocate costs to government contracts, ensuring comparability and auditability
CAS ensure that contractors allocate costs consistently and fairly to government contracts, preventing practices that shift costs from commercial work to government contracts or distort reported costs.
Question 6: What is a 'Should-Cost Review' under FAR 15.407-4 and when is it conducted?
- A government team analysis of a contractor's work to identify and reduce costs before negotiation of a significant contract or modification; conducted when there is potential for significant cost reduction (Correct answer)
- An annual audit of contractor overhead rates required by DCAA
- A review conducted after contract award to verify the contractor is performing at proposed cost
- A review of the government's IGCE to ensure it reflects realistic market costs
Correct answer: A government team analysis of a contractor's work to identify and reduce costs before negotiation of a significant contract or modification; conducted when there is potential for significant cost reduction
FAR 15.407-4 authorizes should-cost reviews to challenge contractor cost structures and identify opportunities for cost reduction that the government can capture in negotiations.
ACAP Defense Acquisition and Cost Policy 2
What is the 'Defense Contract Audit Agency (DCAA)' and how does it support Army cost analysis?