Exclusive: Reid Jackson On Why New DFARS Rules Are Not Business As Usual

Changes made to the Defense Federal Acquisition Regulation Supplement business systems regulations are not business as usual, according to Compusearch Software Systems CEO Reid Jackson.

Jackson told ExecutiveGov the updated rule is of concern to the contracting community since it allows the government to withhold up to 10 percent of contract billing if business systems are deemed significantly deficient.

Compusearch usually holds events catered to government agencies, but it recently held its “Contracting in a Time of Change” for government contractors to bring to light the facts around the updated DFARS rule.

The new rule combines existing rules and requirements with some new hurdles and turns them into one comprehensive framework for what is required across six specific business systems, Jackson said.

Systems covered under the consolidated rule include accounting, earned value management, estimating, material management, property management and the purchasing system, including contracts.

“The government has the ability to withhold payment on bills if a contractor’s systems have significant deficiencies,” Jackson said. “Contractors’ concern is that the measure of a deficiency is ambiguous, with a lot of room for auditors and contracting officers to interpret if a deficiency is significant.”

Tim Callahan, Defense Contract Management Agency executive director of contracts, gave the opening remarks at Compusearch’s event on how DCMA will implement the new rule and potential impacts on the sector.

Jackson said the event also provided contractors the opportunity to give feedback to Callahan on how applications of the new DFARS rule are affecting contractors.

The rule was finalized in February and applies to all contracts where the specific clause is included.

Contractors voiced concern that this may be a slippery slope where DCAA will begin to examine every contract within the business systems instead of only accounting for contracts with the specified clause.

However, Callahan noted that before a company is listed as being significantly deficient, a DCMA panel would review the audit itself.

This process provides a way for DCMA to ensure they are applying DFARS consistently, Jackson said.

Jackson said the most useful suggestion the event yielded was for contractors to get their house in order before the auditor comes.

Previously, some contractors would pursue the lowest level of effort to get nominally compliant within the rules, but there is a move to be fully compliant as a result of the new withholding component of the DFARS business systems rule.

“This is a time of decreasing budgets and increasing pressures to get your system compliant,” Jackson said.

Larger defense contractors may have available funds to invest in the systems necessary to get their house in order, it provides a larger challenge to smaller firms that are squeezed by decreasing budgets and contract volume.

Jackson describes implementing compliant business systems as the largest single business system investment contractors have to make.

“A smaller company is going to have to make thoughtful decisions about how to bring their business systems into compliance in a way that not only keeps them free of withholdings but also improves their cost competitiveness,” he said.

Contractors do not want to spend a lot to bring their house in order if it won’t provide them some operating benefit in the future, he said.

When asked how a contractor should proceed if their business systems are found to have deficiencies, Rob Burton, panelist at the event and partner at the law firm Venable, believes “it is already too late.”

“Contractors need to have an action plan in place with information such as who is involved, who do they call for assistance, is there a mitigation strategy in place,” Burton said, according to Jackson.

“If you are not afraid of this rule yet, then you are not paying attention,” Jackson said, adding that the aim of Compusearch’s event was to eliminate the mythology associated with DFARS business systems rule.

Jackson said contractors right now fall into one of two categories: they are either dreadfully concerned about how to get their house in order and preparing for the auditor or they are not paying attention.