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DoD Gets Earful over Amended Contractor Withholding Plan

Photo: defense.gov

The Defense Department recently scaled down plans to withhold a percentage of payment if a contractor supplies a deficient business system.

The original rule change, which would apply to internal company controls, such as accounting measures, had drawn significant outcry from industry circles and the amendment appeared to assuage critics of the original proposal.

However, in a letter to the Defense Acquisition Regulation Authority, several industry groups said DoD needs to go back to the drawing board yet again.

One of the reasons the groups, including the Professional Services Council, opposed the original rule, which would have cut 10 percent from a contractor’s payment for faulty business systems, was because those systems were not clearly defined, the groups said.

“While this second rule,” which would cut 5 percent from a payment, “does a better job than the first proposed rule of identifying those system attributes and linking system deficiencies to elements of risk to the government,” the letter states, “there are still significant concerns with the attributes of the individual business systems and the withhold process that must be addressed.”

The six business systems that would be monitored are: accounting, estimating, purchasing, material management and accounting, earned value management and property management.

Observers have noted the seemingly good intentions of DoD’s new rules.

“The proposal is designed to be a barrier against abuse,” Federal Computer Week explains, because such practices are easier to detect if businesses abide by certain requirements.

But, in their letter, the groups contend there would inconsistent procedures for identifying systems. Further, the letter states neither versions of the proposed rule have done a sufficient job of requiring DoD to show evidence of “actual or potential cost impact of the system deficiencies” for which it is withholding partial payment.

“We strongly believe that deficiencies should be characterized as significant and material before withholding is deemed appropriate,” the letter states.

Stan Soloway, of the industry advocacy group The Professional Services Council, said he urges the department to review the letter and the public comments and “promptly engage in a meaningful discussion with industry about the coverage of the rule.”

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