Often, the mention of “government contract compliance” invokes dread due to the involved complexity, leading to intimidation and confusion. The government can be a challenging entity to work with because of the warranted pressure and expectations associated with the expenditure of public funds. But for many, it is worth the effort, with over $500 billion worth of government contracts in contention every year.
However, government contract compliance is more than just providing a competitive advantage during procurements. For awarded contracts, failure to comply with the regulations could lead to heavy penalties or contract termination.
This guide will break down the fundamentals of government contract compliance and a step-by-step process for building an effective framework.
Key Components of Government Contract Compliance
Any company aiming to conduct business with the government in the capacity of a contractor, subcontractor, or supplier must adhere to certain standards set forth by the applicable government agencies and departments. Key areas of government contract compliance include:
The Federal Acquisition Regulation (FAR) is the primary source of guidance for procurement integrity. This subcategory of government contract compliance is intended to promote fair and open competition in the procurement of government contracts. Key principles of procurement integrity include:
- Conflict of interest: Under this principle, government contractors are expected to disclose any personal or organizational conflicts of interest that may arise during the procurement process. These include financial or personal relationships that may affect objectivity in the procurement decision or contract administration.
- Competitive bidding: Government contracts are awarded through a competitive bidding process. Contractors may not engage in anti-competitive practices such as collusion, bid rigging, or obtaining insider information.
- Kickbacks: Government contractors must not offer or provide anything of value to influence government officials. This refers to gifts, payments, or any other incentives.
- Ethics training: Contractors are expected to have an effective ethics training program for their employees. The above principles should be covered in the training, as well as other government contract compliance requirements.
Contract Administration and Management
After the contract has been awarded, management and oversight will be required. They must be executed in accordance with the rules and regulations of government contracting and the terms and conditions of the said contract. Deliverables must be met on time, within budget, and at the required quality level.
Financial management and reporting are also required, including ensuring that all costs charged to the government are allowable, allocable, and reasonable. The general rules and regulations for contract administration include:
- Cost Accounting Standards (CAS): The CAS is a set of standards that ensures consistency in cost accounting practices across government contracts. Full CAS coverage applies to contractors awarded a single CAS-covered contract award worth $50 million or more or $50 million or more in net CAS-covered awards. Otherwise, modified coverage applies.
- The Federal Acquisition Regulation (FAR): The FAR is the main source of guidance for contract administration, covering various topics including contract modifications, allowability, cost reporting and reimbursement, and audits.
- The Defense Federal Acquisition Regulation Supplement (DFARS): The DFARS is a supplement to the FAR specifically for Department of Defense contracts.
- Generally Accepted Accounting Principles (GAAP): In situations where CAS might not directly apply, contractors may be required to comply with GAAP — the standard framework of guidelines for financial accounting.
- General Services Administration (GSA): The GSA provides centralized procurement for the federal government. It covers acquisition policies, contract clauses, and solicitation provisions, among other areas.
Tips for Ensuring Government Contract Compliance
To remain competitive and compliant, contractors must employ proactive and well-informed compliance strategies. Here are some tips to keep in mind:
Stay Up-to-Date on Regulations
Information is the lifeline to compliance, as it is in virtually all business aspects. Contractors must continuously stay abreast of changes in government regulations if they are to remain compliant. Fortunately, the government agencies responsible for these regulations maintain dedicated online resources to help advance this cause.
Develop Policies and Procedures
It would be futile to understand government contract compliance regulations without a framework for implementation. As such, contractors must develop and document policies outlining internal processes for procurement, contract administration, and other pertinent areas.
Conduct Regular Audits
Contract administration is a dynamic process subject to constant monitoring and evaluation. This means contractors must always be aware of current compliance regulations to avoid getting caught off guard. Regular internal audits allow for a proactive approach towards government contract compliance.
Seek Expert Guidance
Accounting is one of the most daunting areas in government contracting. Even with the right policies and procedures, contractors often struggle to keep up with the dynamic accounting requirements for government contracts.
In addition, online resources for government contract compliance are often vague and vast. The best practice is to partner with government contract compliance experts. Diener & Associates has a team of seasoned and results-driven CPAs with outstanding expertise in government contract compliance.
Our tailored offerings are well-suited to government contractors seeking to stay competitive during procurement, avoid penalties, and maximize profitability. Contact Diener & Associates today to get expert guidance on government contract compliance.