Collapse to view only § 3844. [Reserved]
- § 3841. Examination of records of contractor
- § 3842. Performance of incurred cost audits
- § 3843. [Reserved]
- § 3844. [Reserved]
- § 3845. Contractor inventory accounting systems: standards
- § 3846. [Reserved]
- § 3847. Defense Contract Audit Agency: annual report
- § 3848. Defense audit agencies: Small Business Ombudsmen
§ 3841. Examination of records of contractor
(a)Records Defined.—In this section, the term “records” includes books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form of computer data, or in any other form.
(b)Agency Authority.—
(1) The head of an agency, acting through an authorized representative, is authorized to inspect the plant and audit the records of—
(A) a contractor performing a cost-reimbursement, incentive, time-and-materials, labor-hour, or price-redeterminable contract, or any combination of such contracts, made by that agency under a chapter 137 legacy provision; and
(B) a subcontractor performing any cost-reimbursement, incentive, time-and-materials, labor-hour, or price-redeterminable subcontract or any combination of such subcontracts under a contract referred to in subparagraph (A).
(2) The head of an agency, acting through an authorized representative, is authorized, for the purpose of evaluating the accuracy, completeness, and currency of certified cost or pricing data required to be submitted pursuant to chapter 271 of this title with respect to a contract or subcontract, to examine all records of the contractor or subcontractor related to—
(A) the proposal for the contract or subcontract;
(B) the discussions conducted on the proposal;
(C) pricing of the contract or subcontract; or
(D) performance of the contract or subcontract.
(c)DCAA Subpoena Authority.—
(1)Authority to require the production of records.—The Director of the Defense Contract Audit Agency (or any successor agency) may require by subpoena the production of any records of a contractor that the Secretary of Defense is authorized to audit or examine under subsection (b).
(2)Enforcement of subpoena.—Any such subpoena, in the case of contumacy or refusal to obey, shall be enforceable by order of an appropriate United States district court.
(3)Authority not delegable.—The authority provided by paragraph (1) may not be redelegated.
(d)Comptroller General Authority.—
(1)In general.—Except as provided in paragraph (2), each contract awarded after using procedures other than sealed bid procedures shall provide that the Comptroller General and his representatives are authorized to examine any records of the contractor, or any of its subcontractors, that directly pertain to, and involve transactions relating to, the contract or subcontract and to interview any current employee regarding such transactions.
(2)Exception for foreign contractor or subcontractor.—Paragraph (1) does not apply to a contract or subcontract with a foreign contractor or foreign subcontractor if the head of the agency concerned determines, with the concurrence of the Comptroller General or his designee, that the application of that paragraph to the contract or subcontract would not be in the public interest. However, the concurrence of the Comptroller General or his designee is not required—
(A) where the contractor or subcontractor is a foreign government or agency thereof or is precluded by the laws of the country involved from making its records available for examination; and
(B) where the head of the agency determines, after taking into account the price and availability of the property and services from United States sources, that the public interest would be best served by not applying paragraph (1).
(3)Additional records not required.—Paragraph (1) may not be construed to require a contractor or subcontractor to create or maintain any record that the contractor or subcontractor does not maintain in the ordinary course of business or pursuant to another provision of law.
(e)Limitation on Audits Relating to Indirect Costs.—The head of an agency may not perform an audit of indirect costs under a contract, subcontract, or modification before or after entering into the contract, subcontract, or modification in any case in which the contracting officer determines that the objectives of the audit can reasonably be met by accepting the results of an audit that was conducted by any other department or agency of the Federal Government within one year preceding the date of the contracting officer’s determination.
(f)Limitation.—The authority of the head of an agency under subsection (b), and the authority of the Comptroller General under subsection (d), with respect to a contract or subcontract shall expire three years after final payment under such contract or subcontract.
(g)Inapplicability to Certain Contracts.—This section does not apply to the following contracts:
(1) Contracts for utility services at rates not exceeding those established to apply uniformly to the public, plus any applicable reasonable connection charge.
(2) A contract or subcontract that is for an amount not greater than the simplified acquisition threshold.
(h)Forms of Original Record Storage.—Nothing in this section shall be construed to preclude a contractor from duplicating or storing original records in electronic form.
(i)Use of Images of Original Records.—The head of an agency shall not require a contractor or subcontractor to provide original records in an audit carried out pursuant to this section if the contractor or subcontractor provides photographic or electronic images of the original records and meets the following requirements:
(1) The contractor or subcontractor has established procedures to ensure that the imaging process preserves the integrity, reliability, and security of the original records.
(2) The contractor or subcontractor maintains an effective indexing system to permit timely and convenient access to the imaged records.
(3) The contractor or subcontractor retains the original records for a minimum of one year after imaging to permit periodic validation of the imaging systems.
(Added and amended Pub. L. 116–283, div. A, title XVIII, § 1835(a), (b), Jan. 1, 2021, 134 Stat. 4239.)
§ 3842. Performance of incurred cost audits
(a)Compliance With Standards of Risk and Materiality.—Not later than October 1, 2020, the Secretary of Defense shall comply with commercially accepted standards of risk and materiality in the performance of each incurred cost audit of costs associated with a contract of the Department of Defense.
(b)Conditions for the Use of Qualified Auditors to Perform Incurred Cost Audits.—
(1) To support the need of the Department of Defense for timely and effective incurred cost audits, and to ensure that the Defense Contract Audit Agency is able to allocate resources to higher-risk and more complex audits, the Secretary of Defense shall use qualified private auditors to perform a sufficient number of incurred cost audits of contracts of the Department of Defense to—
(A) eliminate, by October 1, 2020, any backlog of incurred cost audits of the Defense Contract Audit Agency;
(B) ensure that incurred cost audits are completed not later than one year after the date of receipt of a qualified incurred cost submission;
(C) maintain an appropriate mix of Government and private sector capacity to meet the current and future needs of the Department of Defense for the performance of incurred cost audits;
(D) ensure that qualified private auditors perform incurred cost audits on an ongoing basis to improve the efficiency and effectiveness of the performance of incurred cost audits; and
(E) limit multiyear auditing to ensure that multiyear auditing is conducted only—
(i) to address outstanding incurred cost audits for which a qualified incurred cost submission was submitted to the Defense Contract Audit Agency more than 12 months before the date of the enactment of this section; or
(ii) when the contractor being audited submits a written request, including a justification for the use of multiyear auditing, to the Under Secretary of Defense (Comptroller).
(2) The Secretary of Defense shall consult with Federal agencies that have awarded contracts or task orders to qualified private auditors to ensure that the Department of Defense is using, as appropriate, best practices relating to contracting with qualified private auditors.
(3) The Secretary of Defense shall ensure that a qualified private auditor performing an incurred cost audit under this section—
(A) has no conflict of interest in performing such an audit, as defined by generally accepted government auditing standards;
(B) possesses the necessary independence to perform such an audit, as defined by generally accepted government auditing standards;
(C) signs a nondisclosure agreement, as appropriate, to protect proprietary or nonpublic data;
(D) accesses and uses proprietary or nonpublic data furnished to the qualified private auditor only for the purposes stated in the contract;
(E) takes all reasonable steps to protect proprietary and nonpublic data furnished during the audit; and
(F) does not use proprietary or nonpublic data provided to the qualified private auditor under the authority of this section to compete for Government or nongovernment contracts.
(c)Procedures for the Use of Qualified Private Auditors.—
(1) Not later than October 1, 2018, the Secretary of Defense shall submit to the congressional defense committees a plan to implement the requirements of subsection (b). Such plan shall include, at a minimum—
(A) a description of the incurred cost audits that the Secretary determines are appropriate to be conducted by qualified private auditors, including the approximate number and dollar value of such incurred cost audits;
(B) an estimate of the number and dollar value of incurred cost audits to be conducted by qualified private auditors for each of the fiscal years 2019 through 2025 necessary to meet the requirements of subsection (b); and
(C) all other elements of an acquisition plan as required by the Federal Acquisition Regulation.
(2) Not later than April 1, 2019, the Secretary of Defense or a Federal department or agency authorized by the Secretary shall award a contract or issue a task order under an existing contract to two or more qualified private auditors to perform incurred cost audits of costs associated with contracts of the Department of Defense. The Defense Contract Management Agency or a contract administration office of a military department shall use a contract or a task order awarded or issued pursuant to this paragraph for the performance of an incurred cost audit, if doing so will assist the Secretary in meeting the requirements in subsection (b).
(3) To improve the quality of incurred cost audits and reduce duplication of performance of such audits, the Secretary of Defense may provide a qualified private auditor with information on past or ongoing audit results or other relevant information on the entities the qualified private auditor is auditing.
(4) The Secretary of Defense shall consider the results of an incurred cost audit performed under this section without regard to whether the Defense Contract Audit Agency or a qualified private auditor performed the audit.
(5) The contracting officer for a contract that is the subject of an incurred cost audit shall have the sole discretion to determine what action should be taken based on an audit finding on direct costs of the contract.
(d)Qualified Private Auditor Requirements.—
(1) A qualified private auditor awarded a contract or issued a task order under subsection (c)(2) shall conduct an incurred cost audit in accordance with the generally accepted government auditing standards.
(2) A qualified private auditor awarded a contract or issued a task order under subsection (c)(2) shall develop and maintain complete and accurate working papers on each incurred cost audit. All working papers and reports on the incurred cost audit prepared by such qualified private auditor shall be the property of the Department of Defense, except that the qualified private auditor may retain a complete copy of all working papers to support such reports made pursuant to this section.
(3) A breach of contract by a qualified private auditor with respect to use of proprietary or nonpublic data may subject the qualified private auditor to—
(A) criminal, civil, administrative, and contractual actions for penalties, damages, and other appropriate remedies by the United States; and
(B) civil actions for damages and other appropriate remedies by the contractor or subcontractor whose data are affected by the breach.
(e)Peer Review.—
(1) Effective October 1, 2022, the Defense Contract Audit Agency may issue unqualified audit findings for an incurred cost audit only if the Defense Contract Audit Agency is peer reviewed by a commercial auditor and passes such peer review. Such peer review shall be conducted in accordance with the peer review requirements of generally accepted government auditing standards, including the requirements related to frequency of peer reviews, and shall be deemed to meet the requirements of the Defense Contract Audit Agency for a peer review under such standards.
(2) Not later than October 1, 2019, the Secretary of Defense shall provide to the Committees on Armed Services of the Senate and the House of Representatives an update on the process of securing a commercial auditor to perform the peer review referred to in paragraph (1).
(f)Numeric Materiality Standards for Incurred Cost Audits.—
(1) Not later than October 1, 2020, the Department of Defense shall implement numeric materiality standards for incurred cost audits to be used by auditors that are consistent with commercially accepted standards of risk and materiality.
(2) Not later than October 1, 2019, the Secretary of Defense shall submit to the congressional defense committees a report containing proposed numeric materiality standards required under paragraph (1). In developing such standards, the Secretary shall consult with commercial auditors that conduct incurred cost audits, the advisory panel authorized under section 809 of the National Defense Authorization Act for Fiscal Year 2016 (Public Law 114–92; 129 Stat. 889), and other governmental and nongovernmental entities with relevant expertise.
(g)Timeliness of Incurred Cost Audits.—
(1) The Secretary of Defense shall ensure that all incurred cost audits performed by qualified private auditors or the Defense Contract Audit Agency are performed in a timely manner.
(2) The Secretary of Defense shall notify a contractor of the Department of Defense within 60 days after receipt of an incurred cost submission from the contractor whether the submission is a qualified incurred cost submission.
(3) With respect to qualified incurred cost submissions received on or after the date of the enactment of this section, audit findings shall be issued for an incurred cost audit not later than one year after the date of receipt of such qualified incurred cost submission.
(4) Not later than October 1, 2020, and subject to paragraph (5), if audit findings are not issued within one year after the date of receipt of a qualified incurred cost submission, the audit shall be considered to be complete and no additional audit work shall be conducted.
(5) The Under Secretary of Defense (Comptroller) may waive the requirements of paragraph (4) on a case-by-case basis if the Director of the Defense Contract Audit Agency submits a written request. The Director of the Defense Contract Audit Agency shall include in the report required under section 3847 of this title the total number of waivers issued and the reasons for issuing each such waiver.
(h)Review of Audit Performance.—Not later than April 1, 2025, the Comptroller General of the United States shall submit to the congressional defense committees a report that evaluates for the period beginning on October 1, 2019, and ending on August 31, 2023—
(1) the timeliness, individual cost, and quality of incurred cost audits, set forth separately by incurred cost audits performed by the Defense Contract Audit Agency and by qualified private auditors;
(2) the cost to contractors of the Department of Defense for incurred cost audits, set forth separately by incurred cost audits performed by the Defense Contract Audit Agency and by qualified private auditors;
(3) the effect, if any, on other types of audits conducted by the Defense Contract Audit Agency that results from incurred cost audits conducted by qualified private auditors; and
(4) the capability and capacity of qualified private auditors to conduct incurred cost audits for the Department of Defense.
(i)Definitions.—In this section:
(1) The term “commercial auditor” means a private entity engaged in the business of performing audits.
(2) The term “incurred cost audit” means an audit of charges to the Government by a contractor under a flexibly priced contract.
(3) The term “flexibly priced contract” has the meaning given the term “flexibly-priced contracts and subcontracts” in part 30 of the Federal Acquisition Regulation (section 30.001 of title 48, Code of Federal Regulations).
(4) The term “generally accepted government auditing standards” means the generally accepted government auditing standards of the Comptroller General of the United States.
(5) The term “numeric materiality standard” means a dollar amount of misstatements, including omissions, contained in an incurred cost audit that would be material if the misstatements, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the Government made on the basis of the incurred cost audit.
(6) The term “qualified incurred cost submission” means a submission by a contractor of costs incurred under a flexibly priced contract that has been qualified by the Department of Defense as sufficient to conduct an incurred cost audit.
(7) The term “qualified private auditor” means a commercial auditor—
(A) that performs audits in accordance with generally accepted government auditing standards; and
(B) that has received a passing peer review rating, as defined by generally accepted government auditing standards.
(Added Pub. L. 115–91, div. A, title VIII, § 803(a), Dec. 12, 2017, 131 Stat. 1451, § 2313b; amended Pub. L. 115–232, div. A, title X, § 1081(a)(19), Aug. 13, 2018, 132 Stat. 1984; Pub. L. 116–92, div. A, title XVII, § 1731(a)(41), Dec. 20, 2019, 133 Stat. 1814; renumbered § 3842 and amended Pub. L. 116–283, div. A, title XVIII, § 1835(c), (d)(1), Jan. 1, 2021, 134 Stat. 4240.)
§ 3843. [Reserved]
(Added Pub. L. 116–283, div. A, title XVIII, § 1835(e)(1), Jan. 1, 2021, 134 Stat. 4241; amended Pub. L. 117–81, div. A, title XVII, § 1701(i)(7)(B)(i), Dec. 27, 2021, 135 Stat. 2142.)
§ 3844. [Reserved]
(Added Pub. L. 116–283, div. A, title XVIII, § 1835(e)(1), Jan. 1, 2021, 134 Stat. 4241; amended Pub. L. 117–81, div. A, title XVII, § 1701(i)(7)(B)(i), Dec. 27, 2021, 135 Stat. 2142.)
§ 3845. Contractor inventory accounting systems: standards
(a) The Secretary of Defense shall prescribe in regulations—
(1) standards for inventory accounting systems used by contractors under contract with the Department of Defense; and
(2) appropriate enforcement requirements with respect to such standards.
(b) The regulations prescribed pursuant to subsection (a) shall not apply to a contract that is for an amount not greater than the simplified acquisition threshold.
(c) The regulations prescribed pursuant to subsection (a) shall not apply to a contract for the purchase of commercial products.
(Added Pub. L. 100–456, div. A, title VIII, § 834(a)(1), Sept. 29, 1988, 102 Stat. 2024, § 2410b; amended Pub. L. 103–355, title IV, § 4102(h), title VIII, § 8105(i), Oct. 13, 1994, 108 Stat. 3341, 3393; Pub. L. 104–106, div. D, title XLIII, § 4301(a)(1), Feb. 10, 1996, 110 Stat. 656; Pub. L. 104–201, div. A, title X, § 1074(b)(3), Sept. 23, 1996, 110 Stat. 2660; Pub. L. 111–350, § 5(b)(28), Jan. 4, 2011, 124 Stat. 3845; Pub. L. 115–232, div. A, title VIII, § 836(e)(6), Aug. 13, 2018, 132 Stat. 1870; renumbered § 3845 and amended Pub. L. 116–283, div. A, title XVIII, § 1835(c), (d)(2), Jan. 1, 2021, 134 Stat. 4240.)
§ 3846. [Reserved]
(Added Pub. L. 116–283, div. A, title XVIII, § 1835(e)(2), Jan. 1, 2021, 134 Stat. 4241; amended Pub. L. 117–81, div. A, title XVII, § 1701(i)(7)(B)(ii), Dec. 27, 2021, 135 Stat. 2142.)
§ 3847. Defense Contract Audit Agency: annual report
(a)Required Report.—The Director of the Defense Contract Audit Agency shall prepare an annual report of the activities of the Agency during the previous fiscal year. The report shall include, at a minimum—
(1) a description of significant problems, abuses, and deficiencies encountered during the conduct of contractor audits;
(2) statistical tables showing—
(A) the total number and dollar value of audit reports completed and pending, set forth separately by type of audit;
(B) the priority given to each type of audit;
(C) the length of time taken for each type of audit, both from the date of receipt of a qualified incurred cost submission and from the date the audit begins;
(D) the sustained questioned costs, set forth separately by type of audit, both as a total value and as a percentage of the total questioned costs for the audit;
(E) the total number and dollar value of incurred cost audits completed, and the method by which such incurred cost audits were completed;
(F) the aggregate cost of performing audits, set forth separately by type of audit;
(G) the ratio of sustained questioned costs to the aggregate costs of performing audits, set forth separately by type of audit; and
(H) the total number and dollar value of audits that are pending for a period longer than one year as of the end of the fiscal year covered by the report, and the fiscal year in which the qualified submission was received, set forth separately by type of audit;
(3) a summary of any recommendations of actions or resources needed to improve the audit process;
(4) a summary, set forth separately by dollar amount and percentage, of indirect costs for independent research and development incurred by contractors in the previous fiscal year;
(5) a summary, set forth separately by dollar amount and percentage, of indirect costs for bid and proposal costs incurred by contractors in the previous fiscal year;
(6) a description of outreach actions toward industry to promote more effective use of audit resources; and
(7) any other matters the Director considers appropriate.
(b)Submission of Annual Report.—Not later than March 30 of each year, the Director shall submit to the congressional defense committees the report required by subsection (a).
(c)Public Availability.—Not later than 60 days after the submission of an annual report to the congressional defense committees under subsection (b), the Director shall make the report available on the publicly available website of the Agency or such other publicly available website as the Director considers appropriate.
(d)Definitions.—
(1) The terms “incurred cost audit” and “qualified incurred cost submission” have the meaning given those terms in section 3842 of this title.
(2) The term “sustained questioned costs” means questioned costs that were recovered by the Federal Government as a result of contract negotiations related to such questioned costs.
(Added Pub. L. 112–81, div. A, title VIII, § 805(a), Dec. 31, 2011, 125 Stat. 1486, § 2313a; amended Pub. L. 114–92, div. A, title VIII, § 893(b), Nov. 25, 2015, 129 Stat. 952; Pub. L. 114–328, div. A, title VIII, § 824(d)(1), Dec. 23, 2016, 130 Stat. 2279; Pub. L. 115–91, div. A, title VIII, § 811(d)(1), title X, § 1081(d)(5), Dec. 12, 2017, 131 Stat. 1460, 1600; renumbered § 3847 and amended Pub. L. 116–283, div. A, title XVIII, § 1835(c), (d)(3), Jan. 1, 2021, 134 Stat. 4240.)
§ 3848. Defense audit agencies: Small Business Ombudsmen
(a)Small Business Ombudsman.—The Secretary of Defense shall designate within each defense audit agency an official as the Small Business Ombudsman to have the duties described in subsection (b) and such other responsibilities as may be determined by the Secretary.
(b)Duties.—The Small Business Ombudsman of a defense audit agency shall—
(1) advise the Director of the defense audit agency on policy issues related to small business concerns;
(2) serve as the defense audit agency’s primary point of contact and source of information for small business concerns;
(3) collect and monitor relevant data regarding the defense audit agency’s conduct of audits of small business concerns, including—
(A) data regarding the timeliness of audit closeouts for small business concerns; and
(B) data regarding the responsiveness of the defense audit agency to issues or other matters raised by small business concerns; and
(4) make recommendations to the Director regarding policies, processes, and procedures related to the timeliness of audits of small business concerns and the responsiveness of the defense audit agency to issues or other matters raised by small business concerns.
(c)Audit Independence.—The Small Business Ombudsman of a defense audit agency shall be segregated from ongoing audits in the field and shall not engage in activities with regard to particular audits that could compromise the independence of the defense audit agency or undermine compliance with applicable audit standards.
(d)Defense Audit Agency Defined.—In this section, the term “defense audit agency” means the Defense Contract Audit Agency and the Defense Contract Management Agency.
(Added Pub. L. 112–239, div. A, title XVI, § 1612(a), Jan. 2, 2013, 126 Stat. 2064, § 204; renumbered § 3848 and amended Pub. L. 116–283, div. A, title XVIII, § 1835(c), (d)(4), Jan. 1, 2021, 134 Stat. 4240.)