In the corporate world, few ventures provide the same level of opportunities and rewards as government contracting. However, the convoluted legal landscape surrounding government contracts intimidates many businesses, deterring them from pursuing these opportunities.
Even before demonstrating competence in delivering goods or services, contractors must first traverse the intricate web of laws and regulations governing government contracts. For compliance, government contractors must practice vigilant observance of legal requisites as well as adopt a proactive approach to meeting these obligations.
Below are essential elements of government contract compliance and measures to ensure adherence.
Federal Acquisition Regulation (FAR)
As the principal set of rules governing government contracting, the FAR dictates virtually all processes involved in acquiring goods and services on behalf of the government. Although its main aim is to regulate the procurement process for government agencies, the FAR also seeks to promote financial integrity and efficiency in government contracting.
The FAR mandates government contractors must follow specific procedures, including precise cost accounting and ethical business conduct. Non-compliance renders a business ineligible for government contracting and, in the best-case scenario, results in penalties and a damaged reputation.
Published as Chapter 1 of Title 48 of the Code of Federal Regulations (CFR), the FAR is organized into 53 distinct parts. Each part contains subsections that address various aspects pertinent to these contracts. Below are some of the topics covered by the FAR:
- Acquisition methods
- Contract financing
- Contractor qualifications and responsibility
- Cost accounting standards
- Intellectual property and data rights
- Labor and wage standards
- Subcontracting
Defense Federal Acquisition Regulation Supplement (DFARS)
The DFARS supplements the FAR by adding provisions and clauses used in defense contracting and acquisition. These regulations take precedence over the FAR in the event of a conflict between the two.
The DFARS is primarily meant to safeguard the sensitive, unclassified information used in DOD contracts. As such, contractors must acquire and use a secure accounting system that protects all privileged information passed between the government agency and the contractor.
Rigorous data encryption and stringent access controls are some of the measures contractors must adopt to ensure DFARS compliance.
In addition, the DFARS heavily emphasizes prompt reporting of any impactful incident, especially those that could compromise security, particularly a breach in the accounting system. The contractor must work in close coordination with the DOD during the reporting for immediate rectification and minimal contract disruption.
Other critical areas covered by the DFARS include:
Bid and proposal (B&P) costs- Independent research and development (IR&D)
- Prohibition on counterfeit electronic parts
- Restriction on the use of specific foreign products
- Subcontracting/small business participation plans
Cost Accounting Standards (CAS)
Formally created in 1963 by the U.S. Congress, the CAS has evolved into 19 standards, each containing several subsections with specific provisions. This set of guidelines is published by the federal government under 48 CFR Part 9904 to govern the allocation of costs in government contracts.
Adhering to cost accounting standards streamlines government contract compliance as it simplifies procedures to be followed while calculating payments and prevents overcharging.
The CAS regulations are primarily applied to large businesses and entities contracting with the federal government. These provisions apply to contracts, subcontracts, or modifications awarded on a cost-reimbursement basis in excess of $2 million.
Government Contract Compliance Strategies
While government contract compliance may sound daunting, it’s within reasonable reach for committed businesses. Below are strategies businesses should implement to achieve government contract compliance:
- Stay Informed: Regulations and guidelines governing government contracts are vast, often intricate, and constantly evolving. Knowing which regulations apply to specific contracts, and keeping up with changes, is instrumental in maintaining a good standing with the government.
- Internal Controls: The information on applicable requirements needs to be acted upon with precision and consistency. Therefore, contractors should establish internal policies and processes to promote government contract compliance. The options vary from project management systems to record-keeping and frequent internal audits.
- Compliance Software and Systems: Many compliance processes can be automated using specialized software. For example, timekeeping and labor accounting systems can record employee time against project charge codes and validate expense reports. The right accounting software also makes government contract compliance a more effortless process.
- Seek Professional Help: Implementing strategies for government contract compliance can be overwhelming, particularly for small to medium-sized contractors without dedicated legal and accounting departments. By outsourcing compliance processes to professional firms, businesses can ensure that they adhere to government requirements while freeing internal resources for other tasks.
Achieve Government Contract Compliance With Diener & Associates
Diener & Associates understands that government contract compliance is critical to the success of any government contracting business.
Our seasoned CPAs offer comprehensive government contract compliance solutions to allow contractors to focus on the deliverables. Contact Diener & Associates today for professional assistance in government contract compliance.