The IRS is Not Immune from Compliance with the FAR

A recent report out of the Treasury IG highlights the IRS’ lack of compliance with the FAR. Report 2013-10-046¬†addresses the lack of compliance with FAR exhibited by the IRS between 2011 and 2012. The report shows that the IRS did not comply with the majority of new FAR clauses enacted by the 2009 Duncan Hunter National Defense Authorization Act. The Act was passed to address the use of high-risk contracts (especially cost-reimbursement type). By not complying with the Act, the IRS opened itself up to waste and inefficiency.

irs agentsA lot can be learned from this report.

First, government agencies are not allowed to comply only with what they want. So, knowing what the agency (and the contractor) must comply with is of utmost importance. In the case of the IRS, there was little documentation and a lack of policy and procedure to justify the selection of cost-reimbursement contracts.

Also, there were no acquisition workforce resources assigned to contracts before the award was made – no contract manager is a bad thing. For the contractors, this was a seeming buffet for contract performance. No one to manage the contract and a cost reimbursement contract makes it easy to overrun estimates with the government to foot the bill. The report mainly addresses the government’s problems in the process, but the contractor is also held to a high standard. The contractor should be aware of the acquisition regulations that apply to contracts of the sort entered into. Perhaps it is not up to the contractor to question it, but it is still necessary to remain reasonable, allocable, and allowable at a minimum in order to comply.

Second, the TIGTA report highlights the need to document – document – document. When in doubt, document. When certain you need to document something – document. When you are certain you do not need to document – document anyway. I once heard the mantra “If it isn’t written, it didn’t happen.” This could very well be the case when an auditor or IG comes to inspect and review. It is important to do what you say, but you have to make sure to document what you say so everyone is clear about what is expected and required.

Last, accuracy is important. The IRS improperly coded three contracts as cost-reimbursement. The different between a Cost-Type and a Fixed-Price Services contract can be significant in the number and types of clauses and requirements for compliance. Just based on the number of required clauses there are 16 for a fixed-price services contract and 19 for a cost-reimbursement services contract. Had they been following the FAR completely and properly, there is a variation between 6 of the clauses. On the fixed side, 52.232-1 and 52.233-3 both apply. On the cost type side, 52.215-22, 52.215-23, 52.215-23 Alternate I, 52.233-3 Alternate I, and 52.242-1 apply. Passthrough charges, protest provisions, payments, and disallowance of costs are all effected.

When you have to be right about contract compliance, it is important to have a go-to source. What is your default? Free or paid? Online or hardcopy?

About Marty Herbert

With 13 years of government contract administration, analysis, finance, and audit experience, I have established a firm baseline in ethics and a specialization in government contracts that has prepared me to become a subject matter expert in my field. I am currently working on enhancing government contracts management and compliance through workflow tools and product offerings - attempting to make the process proactive as opposed to reactive.
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