American Bar Association Forum on the Construction Industry _________________________________________________________________________

The Owner Wants to Audit Us…What Next? Presented at the 2016 Mid-Winter Seminar

Paul S. Ficca Senior Managing Director

FTI Consulting, Inc.

Scott P. Fitzsimmons Partner

Watt, Tieder, Hoffar & Fitzgerald, LLP

Contributing Authors:

Rob Gardner and Cuong Ha

FTI Consulting, Inc.

Eric M. Liberman Associate

Watt, Tieder, Hoffar & Fitzgerald, LLP

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January 21-22, 2016 Westin St. Francis, San Francisco, CA ____________________________________________________________________

©2016 American Bar Association

Executive Summary

This paper provides a useful guide to contractors and owners regarding the construction

and government contract audit process. As a contractor, receiving notice that the owner wants to

audit your construction contract, particularly your first such experience, can be intimidating and

leave you full of questions. Whether the owner is a federal, state, or local government entity or a

private company, the primary purpose of an audit is to insure that the contractor’s charged

amounts comply with the contract terms. Audits can benefit the contractor by accelerating

payment on amounts due. However, they can also be time consuming and require proper

preparation and organization. This paper is intended to help contractors understand the

construction audit process, the types of audits, the parties’ general rights and obligations during

the audit process, government regulations, standard commercial contract audit provisions and

best practices to employ when preparing for and navigating through a construction cost audit.1

1 About the Authors:

Paul S. Ficca is the global leader of FTI’s Construction, Environmental and Government Contracts practice and is a Senior Managing Director. Mr. Ficca is a Certified Public Accountant, Certified Management Accountant, Certified Fraud Examiner and Certified in Financial Forensics. Mr Ficca has testified as an expert witness on construction damages, forensic accounting, and construction auditing related topics in various courts, and dispute resolution forums. Scott P. Fitzsimmons is a Partner with the law firm Watt, Tieder, Hoffar & Fitzgerald, LLP in McLean, Virginia. Mr. Fitzsimmons focuses his practice on government contracts and construction. He has represented contractors in numerous audits by government agencies including the Defense Contract Audit Agency (DCAA) and the General Services Administration Inspector General. He has also represented contractors in disputes in state and federal court and before the federal boards of contract appeals. Before joining Watt Tieder, Mr. Fitzsimmons was a law clerk for a federal judge at the United States Court of Federal Claims. Robert C. Gardner, Jr. is a Managing Director in the Houston office of FTI Consulting. Mr Gardner has over 25 years of experience providing contract and claim advisory services on aerospace and defense, construction, insurance and environmental matters involving procurements at the federal, state and local levels. Specializing in complex/developmental programs typically involving contract disputes, Mr. Gardner’s work often

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Discussion Overview

This Paper is organized as follows:

Section 1: Audits in the public sector (government contracts)

Section 2: Audits in the private sector (commercial contracts)

Section 3: Comparing and Contrasting Public and Private Sector Audits

Section 4: Audit Sampling Methods

Section 5: Best Practices

Section 6: Is the Audit Part of a Dispute, Claim or Litigation?

Section 7: Conclusion – Lessons Learned and Contractor Don’ts

This Paper includes several charts illustrating the audit process:

1. Chart A presents a summary of typical audit steps for both public and private contracts.

2. Chart B presents more detailed information pertaining to public contracts.

3. Chart C presents the logic for determining the applicability of the Cost Accounting

Standards (CAS) and Disclosure Statement requirements for a public contract.

4. Chart D presents more detailed information pertaining to private contracts.

I. Audit Authority - What Gives an Owner the Right to Audit Your Records?

Public and private sector audits can vary substantially. As presented below in Chart A,

the first step begins with differentiating between public and private construction contracts.

requires the investigation, identification, quantification, and presentation of root causes responsible for extra-contractual cost & schedule growth. Mr. Gardner is well versed in conducting and advising clients on contract audit matters. Cuong Ha is a Senior Consultant in the Seattle office of FTI Consulting. Mr Ha has experience working with large general contractors and government contractors on claims, damages and cost audit related matters. He has successfully developed and audit sampling methods and conducted cost audits in litigation settings. He has advised clients on cost certification in compliance with the Contract Disputes Act. Eric M. Liberman is an Associate with the law firm Watt, Tieder, Hoffar & Fitzgerald, LLP in McLean, Virginia. Mr. Liberman focuses his practice on government contracts and construction litigation. Eric also has 3 years’ experience working as an accountant and tax consultant.

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Federal, state and local entity contracts are generally subject to audit with the owner’s rights,

scope, timing and resolution process determined by government regulations. For private

contracts, the contract language defines the rules of the audit. Thus, less uniformity exists in the

requirements and performance of commercial audits when compared to government contract

audits.

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Owner-initiated audits are not unique to government contracts. Audit clauses are also

used by private companies to ensure that the owner has the right to oversee the books and

records of its contractors to ensure funds are spent properly and efficiently and that charges are

billed in accordance with contract terms and conditions.1 Although government audits have a

similar purpose, the structure and process of a government audit varies significantly from those

performed by private companies.

Section 1: Audits in the Public Sector

In addressing public contract audits, the following discussion provides information on the

Defense Contract Audit Agency (DCAA), the DCAA’s Contract Audit Manual (CAM), the

Federal Acquisition Regulations (FAR) and Generally Accepted Government Auditing Standards

(GAGA). These resources are the primary guides for understanding how audits are performed in

the government sector.

A. Defense Contract Audit Agency (DCAA)

The DCAA has long been responsible for the financial oversight of federal procurement

contracts to ensure that the DoD and other agencies obtain the best value for every dollar spent.

Created in 1965, the DCAA is an independent agency within the DoD and operates under the

direction of the Undersecretary of Defense.2 The DCAA’s primary responsibility is to provide

oversight of DoD contracts by furnishing all necessary contract audits.3 These audits typically

include reviewing and verifying the cost data of government contractors at all stages in the

procurement process to evaluate the accuracy, reasonableness, and allowability of costs

incurred.4 All DCAA audits are performed in accordance with Generally Accepted Government

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Auditing Standards (“GAGAS”) to ensure contractors maintain sufficient internal controls to

prevent ineffective and inefficient practices.5 As a result, the DCAA ensures prices paid by the

government are fair and reasonable and that contractors are charging prices in accordance with

applicable laws, regulations, standards, and contract terms.6 Audit findings by the DCAA are

typically focused on identifying areas and items of non-compliance.

B. Federal Acquisition Regulations (FAR)

The Federal Acquisition Regulations (“FAR”) are the principle regulations used by

federal agencies in their acquisition of supplies and services. In addition to GAGAS and the

DCAA Contract Audit Manual (“CAM”), the FAR and the contract provisions serve as the

government auditor’s primary guidelines.7 If any federal funds are provided for state and local

public contracts, the FAR regulations and audit provisions may also apply to those contracts.

Local government entities often model their contract terms and conditions after the FAR and

incorporate DCAA, CAM and GAGAS guidelines.8

The DCAA and federal agencies receive their audit authority from the United States

Code, 10 U.S.C. § 2313, which states :

(a) 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 this chapter; 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).9

This statute grants DCAA the authority to access a contractor or subcontractor’s internal

financial documents for the purpose of verifying costs.10 The statute also gives DCAA direct

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authority “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” where such

information is needed “for the purpose of evaluating the accuracy, completeness, and currency of

certified cost or pricing data.” 11

The FAR also provides agencies and the DCAA with audit authority. For example, FAR

§ 15.209(b) requires that defense contracts contain the standard FAR clause found in FAR §

52.215-2, which identifies the records to be maintained by a contractor and the government’s

rights to examine the contractor and subcontractors’ records, procedures, and practices that are

relevant to the contract.

Although the DCAA is responsible for performing the audit, it merely serves in an

advisory role.12 The owner is the government agency responsible for the acquisition.13 The

owner on DCAA audits is a DoD agency because the DCAA performs all contract auditing for

the DoD.14 However, the DCAA may be used by other agencies on a fee-for-service basis. Thus

DCAA may be used by other agencies. .15 Examples of these agencies include the National

Aeronautics and Space Administration (NASA), the Department of Energy (DOE, the

Environmental Protection Agency (EPA), the Department of Transportation (DOT), the

Department of Interior (DOI), and the Department of Commerce (DOC).16 Other agencies, such

as the General Services Administration (GSA), may use its own auditors. Within GSA, auditors

are assigned to the GSA Inspector General’s office.

The Contracting Officer (“CO”) generally has the sole “authority to enter into,

administer, or terminate contracts and make related determinations and findings” for agency

acquisitions.17 FAR § 1.602-2 explicitly states that COs are “allowed wide latitude to exercise

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business judgment” and are required to “[e]nsure that contractors receive impartial, fair, and

equitable treatment.” Correspondingly, the CO is not required to follow the findings, opinions, or

recommendations of the DCAA or other auditors.18 In practice, however, the CO will typically

follow the auditor’s advice unless credible evidence is brought to the CO’s attention

demonstrating that the auditor’s concerns are unfounded, inaccurate, or insufficient. 19 If a

contractor disagrees with particular audit findings, they can raise those concerns with the CO.

As set forth above, the DCAA is independent of the CO and the contracting government

entity. 20 Thus, the DCAA will seek to provide impartial “financial information and advice

relating to contractual matters and the effectiveness, efficiency, and economy of contractors’

operations” for the agencies that use it. 21 Make no mistake, however, the DCAA and all

government auditors’ primary objective is to protect the public fisc. DCAA audits may include

“the evaluation of a contractor’s policies, procedures, controls and actual performance,

identifying and evaluating all activities which contribute to, or have an impact on, proposed or

incurred costs of Government contracts” so that the agency may avoid “wasteful, careless, and

inefficient practices” by its contractors. 22 The DCAA’s general audit interests include: 1)

evaluating incurred costs of government contracts, 2) evaluating contractors’ financial policies,

procedures, and internal controls, and 3) identifying opportunities for contractors to reduce or

avoid costs (operations audits).23 The DCAA’s primary audit objectives are to: 1) serve the

public interest in ensuring taxpayer dollars are spent on a fair, reasonable and appropriate basis;

and, 2) ensure contractors accumulate, report and bill for only costs that are allowable, allocable

and required per the contract.

DCAA audits are a powerful tool that agencies may use to eliminate waste and

inefficiency during the administration of federal acquisitions.

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C. Generally Acceptable Government Accounting Standards (GAGAS)

GAGAS, also known as the Yellow Book, is a set of guidelines used by government

auditors for conducting audits.24 The term “audit” or “yellow book audit” refers to financial

audits, attestation engagements, and performance audits conducted in accordance with

GAGAS,25 not to the audit of company financial statements. The most current version of the

GAGAS can be found on the GAO’s website at: http://www.gao.gov/yellowbook/overview.

The DCAA must comply with GAGAS when conducting its audits.26 Generally, these

standards require DCAA to evaluate and test a company’s internal controls, which includes

evaluating the work of the company’s internal audit activity, specific controls, and business

systems.27 GAGAS also dictate the documentation of audit work. GAGAS determines what

comprises appropriate, relevant, and sufficient evidentiary matter that the DCAA should review

and rely upon for audit findings,28 and it contains requirements and guidance to assist auditors in

making objective evaluations.29

D. DCAA Contract Audit Manual (CAM)

The CAM is the DCAA’s audit manual. It provides DCAA auditors with technical audit

guidance, audit techniques, audit standards and technical policies and procedures and is

applicable to all types of contracts. The CAM dictates that the auditor must use professional

judgement in: 1) selecting the procedures and techniques best suited to the audit objectives; and,

2) determining the audit scope.30 The electronic version of the CAM is regularly updated, with a

current version available at: http://www.dcaa.mil/cam.html.

CAM § 1-504 specifically cautions auditors to use good judgment and rationale in

deciding what contractor records should be sought and explains that auditors “must consider the

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audit objective, the risk, and materiality of an error or misstatement in the area being audited and

the effect on the audit opinion” when following GAGAS procedures. GAGAS, therefore,

provides a “framework for conducting high quality audits with competence, integrity, objectivity,

and independence,” and “lead[s] to improved government management, better decision making

and oversight, effective and efficient operations, and accountability and transparency for

resources and results.”31 This also means that there must be a reasonable basis for requesting and

auditing company records.

E. DCAA’s General Audit Interests

Fundamentally, DCAA serves the public interest by offering honest, objective, and

independent audits.32 As the GAO notes in its report titled DCAA Audits: Widespread Problems

with Audit Quality Require Significant Reform:

Serving and honoring the public trust are critical when performing government audits. Auditors increase public confidence when they conduct their work with an attitude that is objective, fact-based, nonpartisan, and non-ideological with regard to audited entities. Auditors should be intellectually honest, independent and free of conflicts of interest in discharging their professional responsibilities.33

The DCAA examines the totality of the contractor’s operations to ensure adequate

internal controls exist to reduce wasteful, careless, or inefficient practices.34 DCAA auditors

evaluate contractor records, books, and other data that contributes to proposed or incurred costs

of government contracts.35 According to the CAM, the audits focus on practices relating to

“accounting, estimating, and procurement; the evaluation of contractors’ management policies

and decisions affecting costs; the accuracy and reasonableness of contractors’ cost

representations; the adequacy and reliability of contractors’ records for Government-owned

property; the financial capabilities of the contractor; and the appropriateness of contractual

provisions having accounting or financial significance.”36

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The CAM further specifies that auditors should develop sufficient evidence by gathering

materials that are:

(1) reasonable as to nature and amount,

(2) allocable and measurable by the application of duly promulgated cost accounting standards,

(3) generally accepted accounting principles and practices appropriate to the

particular circumstances; and

(4) in accordance with applicable cost limitations or exclusions as stated in the contract or in FAR.37

Of course, auditors are instructed by the CAM to base their professional opinions and

conclusions on their actual knowledge of the contractor’s classification and expenditure

practices. 38 Auditors are encouraged to learn and understand the contractor’s accounting

nomenclature, chart of accounts, accounting manuals, and financial statements.39 Also, to express

a valid opinion, auditors must physically examine and test the contractor’s records, including job

cost records and indirect cost rates.40

Because an auditor’s primary goal is to oversee agency procurement to ensure accuracy

and efficiency, the DCAA reports any matters that need improvement.41 Specifically, the DCAA

will signal evidence of excessive contract prices or profits or indications of overcharges or

inadequate compensation to the government agency. 42 Auditors conduct this analysis by

verifying the costs asserted in the contractor’s request for adjustment or claim by tracking them

back to source documents, such as timesheets and vendor invoices.43 If issues are discovered, the

CO in some situations may use the DCAA’s reports to reduce the contract price should the audit

disclose certified cost or pricing data that was incomplete, inaccurate, or not current.44

F. DCAA’s Major Areas of Emphasis

The CAM places significant emphasis on a contractor’s ability to track costs accurately,

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especially costs pertaining to labor.45 Through both an analysis of contractor internal controls

and the collection of appropriate and sufficient evidence to support their findings, the DCAA

seeks out indicators of inefficiency and waste. 46 Once the DCAA has fully examined the

contractor’s data and records, it develops a report to address these issues and provides guidance

as to how the government agency should respond.47

The DCAA also seeks to support its professional findings and conclusions with physical,

documentary, and testimonial evidence.48 According to the CAM, evidence is required to be

both sufficient and appropriate.49 The CAM describes “appropriateness” as:

[T]he measure of the quality of the evidence that encompasses its relevance, validity and reliability in supporting audit objectives and related findings. In assessing the overall appropriateness of evidence, auditors should assess whether the evidence is relevant, valid, and reliable.

(1) Relevance refers to the extent to which evidence has a logical relationship with, and importance to, the issue being addressed.

(2) Validity refers to the extent to which evidence is based on sound reasoning or accurate information.

(3) Reliability refers to the consistency of results when information is

measured or tested and includes the concepts of being verifiable or supported.50

“Sufficiency,” on the other hand, is described by the CAM to be “a measure of the

quantity of evidence used to support the findings and conclusions related to the audit

objectives.”51 In order to meet its sufficiency objective, the DCAA is required to gather enough

evidence to persuade a “knowledgeable person” that their findings are reasonable.52 All audits in

the DCAA, therefore, must be appropriate and sufficient to support final audit conclusions.53

G. Contract Amount and Type Determine Verification Requirements

As presented on Chart A, the amount of a government contract is relevant to the

contractor’s certification requirements. On all contracts or contract modifications greater than

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$700,000, the contractor is required to certify that all of its cost and pricing data is accurate,

complete and current under FAR 15.403-4. In addition, FAR 15.404-1(c)(2)(iv) requires cost

analysis to include appropriate verification that the offeror's cost submissions are in accordance

with contract cost principles and, when applicable, the CAS (see Chart C). The Truth in

Negotiations Act (TINA) also requires contractors to submit cost or pricing data if the

procurement is above the TINA threshold ($700,000) and none of the exceptions to cost or

pricing data requirements apply.54

Thus, contracts requiring certification are frequently audited. The type and focus of

DCAA’s audits will vary based on the contract type. For example, many DCAA audits on firm-

fixed price contracts take place during the proposal stage rather than in the incurred cost stage.

The reverse is true for cost reimbursable contracts. The allowable costs properly included in the

final pricing of cost-plus contracts are generally determined after they are incurred and audited.55

H. Scope of an Audit – What can the Government Review under the Law? According to the Audit and Records Negotiation clause in FAR 52.215-2, the DCAA has

a broad right to access contractor records. 56 Not only can the DCAA access cost records

associated with a particular procurement contract under audit, it can also access “contractor

policies, procedures, systems, management reports, personnel, minutes of its board of directors’

meetings, charters, and bylaws.”57 Additionally, the DCAA has access to contractor employees

under GAGAS, using detailed employee interviews and labor floor checks to assess the adequacy

of a contractor’s internal controls and the propriety of its recorded labor charges.58

The DCAA does not have unbridled access to all contractor records. In its Grumman

Aircraft Engrg. Corp. decision, the Armed Services Board of Contract Appeals stated that an

“auditor certainly has no right to roam without restriction through all the contractor’s business

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documents which have no connection with the Government contract.”59 Thus, the boards of

contract appeals and courts will examine “(a) the statutory, regulatory, or contractual authority of

the auditor to access the records being sought, (b) the relevance of the materials to the underlying

audit, and (c) the scope of the request” to determine whether the DCAA may access certain

contractor records.60 As a result, the DCAA may not obtain records and data entirely unrelated to

the contract being audited.

DCAA audits can take many forms with a variety of objectives. For example, given the

DCAA’s “interests”, there are 67 “Audit Programs” currently identified in the DCAA’s

Directory of Audit Programs.61 We advise any auditee facing a DCAA audit to be clear what

type of audit is being conducted, review these published audit programs in advance of the audit

taking place and seek qualified assistance from legal counsel and/or consultants well-versed in

the conduct of government audits.

I. Pre-Award and Post-Award Audits

As presented in Chart B below, the DCAA’s scope on pre and post award audits includes:

1) business systems, 2) management policies and procedures, 3) accuracy and reasonableness of

the contractors’ forward pricing and incurred cost representations, 4) adequacy and reliability of

records and accounting systems, and 5) contractor compliance with contractual provisions having

accounting or financial significance, such as the Cost Principles (FAR Part 31), the Cost

Accounting Standards (CAS) Clause (FAR 52.230-2), and the clauses pertaining to the Truth in

Negotiations Act (TINA) (FAR 52.215-10 through 13).62 The CAS and disclosure statement

requirements are illustrated on Chart C.

Chart B, set forth below, identifies the significant focus for audits, including pre-award

audits:

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Chart C, below, sets for the CAS Coverage based on contract type and amount:

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A pre-award survey or “audit” typically involves the DCAA’s evaluation of a prospective

contractor's ability to perform a proposed contract. Audits pertaining to a contractor’s financial

capability, adequacy of the contractor’s accounting system and adequacy of the contractor’s

proposal can be expected, particularly for contractors who are new to public contracting. We

direct the reader for further guidance concerning pre award audits to:

DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012

DCAA’s Pre award Survey of Prospective Accounting System at: http://www.dcaa.mil/Preaward_Survey_of_Prospective_Contractor_Accounting_System_Checklist.pdf.

DCAA’s Adequacy of a Contractor’s Pricing Proposal Checklist at: http://www.acq.osd.mil/dpap/dars/dfars/html/current/252215.htm#252.215-7009 .63

One test worth mentioning and shown on Chart B relates to the adequacy of the

contractor’s accounting system and the exclusion of unallowable costs.

A contractor’s cost accounting system must exclude costs charged to government

contracts that are not allowable pursuant to FAR Part 31, Contract Cost Principles and

Procedures, or other contract provisions. For example, the FAR identifies some costs as

expressly unallowable: e.g., bad debts (FAR § 31.205-3); contingencies (FAR § 31.205-7);

contributions or donations (FAR § 31-205-8); and entertainment (FAR § 31.205-14), and

requires that they be excluded from proposals and billings. While these costs may be legitimate

business expenses, they will not be accepted by the government as allowable contract costs.64

For any contractors new to the government contracting arena, these types of pre-award audits

may generate a need to consult with legal counsel and consultants well-versed in cost systems

designed to properly segregate costs.

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J. Allowable Costs65 and Indirect Cost66

FAR § 31.201-2 sets forth the factors to be considered when determining whether a cost

is allowable, which include: (i) reasonableness, (ii) allocability, (iii) standards promulgated by

the Cost Accounting Standards Board (CASB), if applicable, otherwise, generally accepted

accounting principles and practices appropriate to the particular circumstances, (iv) terms of the

contract; and, (v) any limitations set forth in this subpart of FAR.

The Allowable Cost and Payment clause, FAR § 52.216-7, requires a contractor to submit

a final incurred indirect cost proposal together with supporting data within six months after the

end of each fiscal year. The receipt of an adequate proposal by the audit office starts the audit

process. This proposal should include a signed "Certificate of Indirect Costs" in accordance with

FAR § 42.703-2 – a copy of which may be found at FAR § 52.242-4.

The DCAA conducts audits on: prime contracts, subcontracts, modifications, final price

redeterminations, equitable adjustments, and terminations for audit to determine compliance with

government statutes. Per the CAM, all incurred cost proposals are evaluated and put either into

“high” or “low” risk categories with one-third of all low-risk proposals and 100% of all high-risk

proposals to be audited.67 Audit selection also considers such factors as contract type and dollar

value of the contract, adequacy of accounting and estimating systems, and the number of

instances and amount of defective pricing found in prior audits. Failure to comply with FAR §

52.216-7, the Allowable Cost and Payment clause requirement to provide an adequate proposal,

will result in a DCAA recommendation for the CO to make a unilateral determination on the

contractor’s final indirect cost rates or contract costs.

K. Penalties for Mischarging68

The manipulation of contract costs may subject offending individuals to criminal

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penalties under 18 U.S.C. § 1001, which reads: “Whoever, in any matter within the jurisdiction

of the executive, legislative, or judicial branch of the Government of the United States

knowingly and willfully (1) falsifies, conceals or covers up by any trick, scheme, or device a

material fact; (2) makes any materially false, fictitious or fraudulent statement or representation;

or (3) makes or uses any false writing or document knowing the same to contain any materially

false, fictitious or fraudulent statement or entry; shall be fined under this title or imprisoned not

more than five years, or both.”

L. Incurred Cost Audit Evaluation69

During the course of the audit, the auditor should discuss findings with the contractor as

they arise - the contractor is expected to provide feedback on these findings on a timely basis.

Continued coordination between the contractor and the auditor should ensure the timely

resolution of audit findings and facilitate an efficient and effective audit process.

After completing the audit, the auditor should provide the contractor with the results of

the audit in writing and seek the contractor’s agreement or comments. Since significant audit

findings should have been discussed during the audit process, an exit conference should provide

a summary of issues and resolutions. The contractor should be given the opportunity to respond

to the audit findings, and any contractor comments should be included in the final report. If

agreement with the contractor is not reached, DCAA should forward its audit report to the

cognizant CO who is expected to then resolve the disagreement.

Section 2: Private Contract Audits

The private sector does not benefit from the uniformity and well-established guidelines of

government contract audits; however, the purpose of an owner-initiated audit remains the same –

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to assure the owner and the project stakeholders that they are billed correctly and that work is

performed in accordance with the contract terms. In the commercial world standard form

contracts and provisions exist that are commonly used and developed by organizations such as

the American Institute of Architects (AIA) and the International Federation of Consulting

Engineers (FIDIC); however, ultimately every standard form contract is subject to edits with the

audit provision language generally being unique to each project.

A. Fixed-Price Contracts

As presented in Chart D below, the first step in the audit process is to identify the

contract’s pricing terms, i.e. fixed price, cost reimbursable, unit price, or other form of pricing.

Although fixed-price contracts are least likely to be audited, contracts often contain a “Changes”

clause - audit provisions may apply to certain cost and pricing data submitted to support a change

order request.

B. Cost Reimbursable Contracts

Cost reimbursable-type contracts in the private sector typically have audit provisions

allowing the owner to audit the contractor’s costs. These provisions define the scope,

parameters, timing and rules related to: 1) accounting records or source documentation; 2) level

of proof of costs; 3) description of the audit process; 4) definition of cost and rates for certain

items such as labor or equipment; 5) definition of allowable and unallowable costs; 6) contractor

record-keeping and reporting requirements for job cost and progress reporting; 7) definition of

any audit restrictions that may apply with respect to disputes, litigation and discoverability of

certain documents; 8) definition and identification of fixed unit rates, lump sum components,

agreed percentages or other agreed-upon special rates for costs related to items such as: changed

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work, subcontractor markups, etc.; 9) record retention requirements, and; 10) definition of the

owner’s rights to audit subcontractors.

Chart D provides a general overview of the audit process for private contracts:

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It is generally advantageous to the owner and contractor to have a clear understanding of

the parties’ audit expectations and requirements set forth in the contract. Following are some of

the typical types and categories of costs addressed in audit provisions:

Labor

o Craft or “Touch Labor”

o Support Labor

Materials

Subcontracts

General Conditions / Field Office Overhead

Equipment: Contractor-Owned, Third-Party Owned, Job-Owned

Change Orders

Home Office Overhead / G&A

Fee

Verification of the contracted scope of work

Section 3: Comparing and Contrasting Public and Private Sector Audits

Although many differences exist between public and private sector audits, the two types

of audits have several similarities as set forth below:

A. Similarities

Public and private audits share a common goal of ensuring that the owner is not being

overcharged and is billed correctly in accordance with the contract’s terms and conditions. In

other words, the owner wants to be ensured that all costs being billed by the contractor are

“allowable”. FAR § 31.201-2 states that the factors to be considered in determining whether a

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cost is allowable include: (i) reasonableness; (ii) allocability; (iii) standards promulgated by the

Cost Accounting Standards Board (CASB), if applicable, otherwise, generally accepted

accounting principles and practices appropriate to the particular circumstances; (iv) terms of the

contract; and, (v) any limitations set forth in this subpart of FAR. Although FAR § 31.201-2

provides some qualifying CASB and FAR language to the definition of “allowable,” an ultimate

determination of allowability will rest on whether the costs are: 1) reasonable; 2) allocable, i.e.

pertaining directly to the contract; 3) consistent with GAAP and appropriate to the circumstance;

and, 4) consistent with the contract. These factors are generally reviewed by a private sector

owner when considering “allowable” costs.

A cost is considered “reasonable” under the FAR if, in its nature and amount, the cost

does not exceed that which would be incurred by a prudent person in the conduct of competitive

business. Reasonableness of specific costs must be examined with particular care in connection

with firms or their separate divisions that may not be subject to effective competitive restraints.

No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If

an initial review of the facts results in a challenge of a specific cost by the contracting officer or

the contracting officer’s representative, the burden of proof shall be upon the contractor to

establish that such cost is reasonable.70 In the private sector, a need to determine whether a cost

is reasonable” is important and referenced multiple times in AIA Form Contracts; however,

“reasonable” is not defined.71

Both public and private audits recognize the importance of auditing cost reimbursable

contracts over fixed-price contracts. Similarly, both types of audit recognize the importance of

auditing change order work and claims on fixed-price contracts. Both types of audits also share

similar audit process logistics. The process usually begins with a formal notice from the owner

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which is then followed by an entrance meeting with the auditor. Interim meetings may be held

with the auditor, an audit close out meeting is held, and the contractor is given the opportunity to

formally respond to the auditor’s findings. Ultimately, if the auditor determines that unallowable

costs have been incurred and billed, those costs may result in adjustments to the contractor’s

billings or refunds to the owner.

Similar to the government, private owners often place requirements on the contractor’s

job cost accounting, reporting, time keeping standards, and financial and resource capabilities.

Finally, both public and private audits will focus on the same types and categories of contractor’s

costs – presented above in Section 2.

B. Differences

The rules and regulations governing contracts, contractors, and audits in the public sector,

i.e. the FAR, DCAA, CAM, etc., generally do not apply to private contracts. Thus, but for

contract provisions dictating the terms and conditions of an audit, few principles other than

standard accounting practices exist for private project audits.

In light of the multiple types of public audits (DCAA identifies 67 audit programs), a

contractor who regularly practices in the public sector is almost guaranteed of being audited in

some form. Contrarily, the private sector has fewer types of audits. For example, pre-award

audits, which test the adequacy of the contractor’s accounting system and financial capability to

perform, are not common in the private sector. Private owners may require that contractors

implement job cost and time keeping controls; however, they generally do not require these

controls to be implemented before a contractor submits a proposal.

A formal certification by the contractor that all of its cost and pricing data contained in a

proposal is accurate, complete, and current does not typically occur in the private sector. Yearly

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submissions of a contractor’s incurred contract costs also are atypical and not required in the

private sector. Finally, the legal penalties for overcharging a public owner can be much more

severe than in the private sector.  

Section 4: Audit Sampling Methods

One element of an audit with which a contractor should be familiar is the use of sampling

and the methods used by auditors to sample a contractor’s financial records. When performing a

cost audit, an auditor may have neither the time nor the resources to review a contractor’s entire

financial record. Instead, the auditor may review only a sample of the total job costs. The FAR

recognizes statistical sampling as a valid approach to identifying unallowable costs. FAR §

31.201-6, Accounting for Unallowable Costs, is presented at the end of this Section.

Sampling relies on inferential statistics and helps the auditor draw conclusions about the

entire population of costs without analyzing every cost transaction and all the related supporting

source documentation. In inferential statistics, an auditor uses random selection to make an

unbiased observation about a population. The least complex and most widely used type of

sampling is “simple random sampling,” wherein each item in the population has the same

probability of being selected. Simple random sampling provides an unbiased result since each

cost item has the same chance of being reviewed regardless of the item’s individual attributes.

Alternatively, auditors may elect to use a more methodical approach during the design of

a statistical study. For instance, with “systematic random sampling,” a random starting point is

selected, and then every kth item of the population is selected (where k is calculated as the

population size divided by the sample size). Systemic random sampling is useful when each

item in a population is not already numbered and the numbering process would be a time

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consuming task, such as when selecting labor costs to audit based on a list of craft laborers

assigned to the project. This process also has the advantage of removing the potential for human

bias in the selection of items to include in the sample. As a result, the “systematic random

sample” provides a sample that is highly representative of the population.

When a population is divided into smaller groups based on some attribute, “stratified

random sampling” can be used to guarantee that each group, or strata, is represented in the

sample. Each strata can then be subjected to simple random selection to collect a sample. In the

case of a construction audit, costs can be stratified based on type of cost, such as labor, vendor,

or equipment.

When designing a statistical study, a common question is “How many items should be in

the sample?” If a sample size is too large, time and money are wasted collecting excessive data.

Similarly, if a sample size is too small, the resulting conclusions may not represent the

population as a whole. When choosing an appropriate sample size, 3 considerations should be

analyzed: (1) the level of confidence desired; (2) the margin of error tolerated; and (3) an

estimate of the population proportion.

Another form of sampling commonly used in the course of an audit is “judgmental

sampling.” Judgment sampling is a non-statistical approach that gives an auditor more control

over the sample selection to gain an understanding of the costs subject to audit. Conclusions

drawn in a judgment sample generally cannot be applied to the population as a whole. For many

audits, a large percentage of costs can be covered by judgmentally sampling a small number of

high-dollar transactions, and can often requires less work while obtaining the same results as a

more involved, random statistical sample. As such, it may be prudent for an auditor to stratify

the costs subject to audit in different ways to gain a better understanding about the

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reasonableness of costs incurred. One method of doing so is by organizing the total individual

project costs in order of value from highest to lowest and reviewing the costs in order until the

auditor reaches the dollar value coverage desired. This method allows the auditor to save time

by reviewing only the largest dollar value items. Another commonly used stratification is to

review costs by vendor, starting with the vendors with the highest project costs, until the auditor

reaches the desired coverage level. A significant advantage of judgmental sampling is that the

auditor spends less time on immaterial items which may otherwise be included in a random

sample.

Section 5: Best Practices

Set forth below are best practices a contractor should follow when preparing for and

responding to an audit:

A. Take the Audit Request Seriously

Regardless of how benign the owner’s notice of an audit may sound, it should be taken

with the utmost seriousness, with upper management being made fully aware and notified that

the audit is a top priority.

B. Establish an Audit Response Team

An Audit Response Team should be established with a “team leader” being identified.

The team leader should identify and include subject matter experts on the team, at a minimum

(particularly in the public sector) from Contracts, Procurement, Subcontracts, Finance, Legal,

Human Resources, Project Management, and Accounting. If the audit is in the public sector and

it is the contractor’s first cost audit, the contractor is encouraged to either identify and include

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someone within their organization who has previously been through a government cost audit or

retain an outside government contracts accounting expert to participate on the team.

C. Assemble the Audit Response Team Before the Audit Entrance Conference

Review the audit notice letter and contract audit provision language with the team and

discuss any key areas of concern or audit risk. The contractor’s audit team must be aware of the

contract’s general audit requirements and the contractor’s responsibilities. A pre-meeting will

help the team members organize their documents. If the owner’s audit notice letter does not

specify the scope of the audit, it is appropriate to request clarification before the start of the

audit. The internal audit team can then prepare to assist the auditor in reviewing the requested

information.

D. Ensure that an Audit Entrance Conference Occurs

If the owner does not schedule an initial meeting or “entrance conference” the contractor

must request one. Make it clear to the owner that it is imperative such a meeting occurs before

the audit begins. The contractor should always designate someone to take notes or minutes of

any meetings with the auditors for internal reference. During the audit entrance conference, the

contractor must ensure clarity with the owner regarding:

a. Scope of the audit: ask as many questions as you like. The more detail, the better for the contractor to develop a clear understanding of the auditor’s scope.

b. Contractor’s internal audit response team. Introduce everyone on the team and demonstrate to the auditor the efforts thus far in assembling the team to assist the auditor. Make clear to the auditor that all communications need to go through the contractor’s audit team leader.

c. The audit process protocol regarding communications. Establish how the owner’s information requests are to be provided.

d. Discuss with the auditor(s) any limitations on information that the contract audit provision language may define and obtain the auditor(s) position(s) on such.

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e. Understand if on-site work is needed and, if so, establish daily close-out meetings with the auditor(s).

f. Understand if employee interviews will be required and, if so, request that the auditor provide names of those persons in advance so appropriate arrangements and preparation with persons to be interviewed can occur in advance.

E. Post Entrance Conference Meeting with Internal Audit Response Team

After the Entrance Conference, convene a meeting with the internal audit team to answer

any questions and to make sure the team understands the following:

a. All communications and documentation with/from the auditor should go through the audit team leader. The audit team leader should keep records of all information provided and is encouraged to ask legal counsel and the audit team if there are questions before providing the auditor with information.

b. The auditor(s) should always be escorted and not be allowed to perform “walk arounds” without someone (preferably on the audit team) acting as an escort. While escorting the auditors, the contractor should always pay attention to what questions the auditor(s) are asking, take notes, and relay them to the audit team leader.

c. All documents provided to the auditor(s) should be marked “Confidential & Proprietary.” This provides added protection for the contractor in limiting the auditor’s distribution of any material. Consider whether a confidentiality agreement is necessary.

d. Make clear that all communications with the auditor(s) should be documented – for internal reference and to avoid misunderstandings – and then forwarded to the audit team leader.

e. Do not provide more information than is requested. It is important that only information that is relevant and responsive to the auditor’s questions be provided. Do not provide information that is not requested. For example, the contractor should redact information which is not required under the audit or investigation. Again, if the team leader has any questions on what to provide, seek legal counsel or other expert advice from someone with prior experience on the audit team in this process.

f. Be as responsive and as timely as possible to the auditor’s requests.

F. Request a Closing Conference

Normally, the owner will hold an exit conference at the conclusion of the audit. If not, the

contractor should request an exit conference. After completing the audit, the auditor should

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provide the contractor with the results of the audit in writing and seek the contractor’s

agreement. From the government’s viewpoint, significant audit findings should have been

discussed during the audit process, and the exit conference should merely be a summary of issues

and resolutions. The contractor will be given the opportunity to respond to the audit findings and

any contractor comments will be included in the final report.72

G. Responses to Audit Reports

In the public sector, if the audit report results in adverse findings such as the identification

of disallowed costs, the contractor may: (1) request the CO, in writing, to consider whether the

unreimbursed costs should be paid and to discuss the findings with the contractor; and/or, (2)

submit to the CO a claim for disapproved costs in accordance with FAR § 33.2 (Disputes and

Appeals). If a formal claim is filed, the CO will usually make a decision within 60 days. If the

contractor disagrees with the CO’s final decision regarding a claim, the contractor may appeal

the decision to the Boards of Contract Appeals (ASBCA) or the Court of Federal Claims.73

H. Other “Non-Owner” Audits

Although beyond the scope of this Paper, the contractor should be aware of other “non-

owner” initiated audits such as: Department of Labor and Office of Federal Contract Compliance

Programs (OFCCP) Audits and Labor audits (ICE I-9, certified payroll compliance).

Section 6: Is the Audit Part of a Dispute, Claim or Litigation?

DCAA auditors may not be trained investigators and will not lead criminal investigations

into contractor operations. However, their findings may be used by government investigators,

which means the DCAA’s unusual inquiries into specific business practices or procedures may

indicate a government investigation is about to occur.74 DCAA auditors are instructed to look for

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indicators of fraud. In fact, the CAM specifically outlines the auditor’s responsibilities for

preventing, detecting, and reporting fraud, improper practices, or other unlawful activity.75 In

particular, auditors are required to initiate an “investigative referral” when they become aware of

circumstances that raise a reasonable suspicion of fraud or other unlawful activity.76

In terms of contractor-based claims against the government, auditors are prohibited from

acting as agents or attorneys for the prosecution of claims against the United States.77 They also

may not aid or support contractors in any way that goes beyond their official duties.78 The

auditors at DCAA, however, may advise contractors as to types of costs that are considered

allowable and unallowable under the law or terms of the contract.79 Additionally, they may also

orally express an opinion as to the acceptability of a specific item of cost upon request.80

Section 7: Conclusion – Lessons Learned and Contractor Don’ts

This Section addresses the audit “Don’ts” for contractors - a result of lessons learned that

have been observed through years of audit experience. Accordingly, we hope these

recommended “Don’ts” will help you avoid the pitfalls of companies and clients who previously

were involved in audits:

Don’t:

1) Minimize the importance of an owner’s notice to audit, regardless of how benign it sounds or how well you think the job is going,

2) Wait until the last minute to prepare for an audit entrance conference,

3) Leave an auditor unattended to wander wherever he/she wants to go,

4) Provide the auditor with information that hasn’t been properly reviewed,

5) Provide the auditor information beyond what was requested or outside the scope of the audit,

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6) Intentionally stall the audit or provide information to the auditor that is nonresponsive,

7) Forget to conduct Entrance and Exit conferences,

8) Allow multiple lines of communication with the auditor,

9) Let the auditor conduct interviews alone without properly preparing the interviewee,

10) Feel obligated to provide the auditor with everything requested – ask legal counsel or other experienced expert, and

11) Ignore the contract terms or agree to contract terms that are vague and ambiguous.

We hope this information will prepare you and your clients for success in all audits they may

encounter.

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ABA Midwinter Meeting – Workshop B: The Owner Wants to Audit Us

Bibliography and List of Website Audit References Publications

McGeehin, Patrick A., Benes, Edward G., Greene, Patrick J., and Wright, Carey Wm. Construction Accounting, American Bar Association, 2010

Website References

DCAA Audit Process Overview:

http://www.dcaa.mil/audit_process_overview.html

DCAA Directory of Audit Programs: http://www.dcaa.mil/audit_program_directory.html

Useful Government Publications:

DCAA, Memorandum for Regional Directors - Audit Guidance on Auditor Communications Preaward Accounting System Adequacy Checklist:

http://www.dcaa.mil/Preaward_Survey_of_Prospective_Contractor_Accounting_System_Checklist.pdf

Proposal Adequacy Checklist:

http://www.acq.osd.mil/dpap/dars/dfars/html/current/252215.htm#252.215-7009 Guide for Determining Adequacy of Contractor Incurred Cost Proposal:

http://www.dcaa.mil/Guide_for_Determining_Adequacy_of_Contractor_Incurred_Cost_Proposal.pdf

Defense Contract Audit Manual, CAM:

http://www.dcaa.mil/cam.html

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Endnotes:

1 Albert Bates, Jr. & Amy Joseph Coles, Audit Provisions in Private Construction Contracts: Which Costs Are Subject to Audit, Who Bears the Expense of the Audit, and Who Has the Burden of Proof on Audit Claims?, 6 Am. C. Construction Law. J. 1 (2012). An example of such an audit provision is as follows:

Seller shall establish a reasonable accounting system, which enables ready identification of seller's cost of goods and use of funds. Buyer may audit seller's records any time before three years after final payment to verify buyer's payment obligation and use of buyer's funds. This right to audit shall include subcontractors in which goods or services are subcontracted by seller. Seller shall insure buyer has these rights with subcontractor(s).

Craig L. Greene, Using the Right to Audit Clause to Detect Procurement Fraud, McGovern & Greene LLP (June 2001), http://www.mcgoverngreene.com/archives/archive_articles/Craig_ Greene_Archives/right-to-audit-clause.html. 2 See Vincent J. Napoleon & Shanelle Henry, Defense Contract Audit Agency's Access to Contractor Internal Audit Reports: Is Newport News Still the Standard?, 42 Pub. Cont. L.J. 517, 518 (2013). 3 Def. Contract Audit Agency, U.S. Dep’t of Def., DCAA Contract Audit Manual, DCAA Manual No. 7640.1 § 1-102(a) (2015) [hereinafter DCAAM]. According to DCAAM § 1-102(a), the DCAA was created for “the purpose of performing all contract auditing for the Department of Defense (DoD) and providing accounting and financial advisory services, in connection with the negotiation, administration and settlement of contracts and subcontracts, to all DoD procurement and contract administration activities.” 4 Id.; see also Napoleon & Henry, supra note 1, at 525 (citing DCAAM § 1-104.2(a)). 5 Napoleon & Henry, supra note 1, at 525. 6 U.S. Gov’t Accountability Office, GAO-09-468, DCAA Audits: Widespread Problems with Audit Quality Require Significant Reform 6 (2009) [hereinafter DCAA Audits]. 7 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2102 8 McGeehin, Patrick A., Benes, Edward G., Greene, Patrick J., and Wright, Carey Wm. Construction Accounting, American Bar Association, 2010 9 See also 10 U.S.C. § 2306a (2006). In particular, § 2306a comprises the Truth in Negotiations Act and requires offerors, contractors, and subcontractors to submit cost or pricing data certified as accurate, complete, and current when negotiating contracts with the Government. Additionally, § 2306a also permits the head of an agency to review the records provided by the offerors, contractors, and subcontractors for the purpose of evaluating their accuracy, completeness, and currency. See also Napoleon & Henry, supra note 1, at 527. 10 10 U.S.C. § 2313(a); see also Napoleon & Henry, supra note 1, at 527 n.80. 11 10 U.S.C. § 2313(a)(2). 12 CAM, supra note 2, § 102(b). An exception exists for cost-type contracts where the auditor is required to comply with specific contract provisions. Id. 13 See David G. Anderson, Effective Construction Claim Resolution: Understanding DCAA, 43 Pub. Cont. L.J. 165, 168-69 (2014). 14 Id. at 168.

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15 DCAA Audits, supra note 5, at 6. 16 Donald P. Arnavas, James J. Gildea, & Norman E. Duquette, DCAA Audits, Federal Publications Inc., 94-09 Briefing Papers 1 (1994). 17 FAR 1.602–1. 18 Anderson, supra note 10, at 168-69. 19 Id. at 169. 20 CAM, supra note 2, §§ 1-103, 1-403.1(b) (“Organizationally, DCAA is separate and independent from acquisition components of the DoD.”). The DCAA has over 5,000 employees located at more than 300 field audit offices throughout the United States, Europe, and the Pacific, and a substantial percentage of these employees are certified public accountants. Anderson, supra note 10, at 168. 21 CAM, supra note 2, § 1-104.2(a). 22 Id. 23 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 24 http://www.gao.gov/yellowbook/overview 25 Generally Accepted Government Auditing Standards (GAGAS) aka the “Yellowbook”: http://www.gao.gov/yellowbook/overview 26 Napoleon & Henry, supra note 1, at 547 (citing CAM, supra note 2, § 2-101). 27 U.S. Gov’t Accountability Office, GAO-15-44, Defense Contract Audit Agency: Additional Guidance Needed Regarding DCAA’s Use of Companies’ Internal Audit Reports 3 (2014). 28 CAM, supra note 2, § 1-504. 29 U.S. Gov’t Accountability Office, GAO-12-331G, Government Auditing Standards: 2011 Revision 5 (2011). 30 CAM 31 Id. 32 DCAA Audits, supra note 5, at 13. 33 Id. 34 CAM, supra note 2, § 1-104.2. 35 Id. In recent years, the DCAA has focused more so on contractor business records. Napoleon & Henry, supra note 1, at 526. 36 CAM, supra note 2, § 1-104.2. 37 Id. 38 Id. 39 Id. 40 Anderson, supra note 10, at 169. 41 CAM, supra note 2, § 1-104.2. 42 Id. The CAM states that if the evidence suggests “(1) suspected fraud or other similar irregularities (4-700); (2) defective pricing (14-100); or (3) solicitation of a voluntary refund (4-800)” then it is reportable by the DCAA. Id. 43 Anderson, supra note 10, at 169. 44 CAM, supra note 2, § 1-104.2; see also FAR 15.408(b) (stating that the CO “shall, when contracting by negotiation, insert the clause at 52.215-11” in order to give the CO the right to reduce the price of the contract should it later be discovered that the certified cost information was inaccurate or incomplete).

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45 Harlan Gottlieb & Kevin L. Phelps, Seyfarth Shaw LLP, Government Contract Compliance Handbook § 13:8 (4th ed. 2014). 46 Id. 47 Id. 48 Id. § 2-506. 49 Id. 50 Id. 51 Id. 52 Id. 53 Id. 54 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 55 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 56 Donald P. Arnavas, James J. Gildea, & Norman E. Duquette, DCAA Audits, 94-09 Briefing Papers 1 (1994). 57 CAM, supra note 2, § 1-504.1b. 58 Arnavas, Gildea, & Duquette, supra note 64 (citing CAM, supra note 2, §§ 6-404.9, 6-405.3). 59 ASBCA No. 10309, 66-2 BCA ¶ 5,846. 60 Arnavas, Gildea, & Duquette, supra note 64 (citing United States v. Westinghouse Elec. Corp., 788 F.2d 164 (3d Cir. 1986)). For example, the Tenth Circuit in C.A.B. v. Frontier Airlines, Inc., 686 F.2d 854 (10th Cir. 1982), rejected an agency’s demand for “all board of directors minutes for a one year period” as being unnecessarily broad despite there being a connection between the requested records and the contract audit. Id. 61 DCAA Directory of Audit Programs: http://www.dcaa.mil/audit_program_directory.html 62 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 63 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 64 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 65 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 66 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 67 Defense Contract Audit Manual, CAM 68 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 69 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 70 FAR 31.201-3 -- Determining Reasonableness 71 McGeehin, Patrick A., Benes, Edward G., Greene, Patrick J., and Wright, Carey Wm. Construction Accounting, American Bar Association, 2010 72 DCAA Manual No. 7641.90, INFORMATION FOR CONTRACTORS, 2012 73 DCAA CAM, 6-908 74 Gottlieb & Phelps, Government Contract Compliance Handbook § 13:8. 75 Id. (citing CAM, supra note 2, § 4-700). 76 Id. (citing CAM, supra note 2, § 4-702.2b). 77 18 U.S.C. § 205 (2006). 78 CAM, supra note 2, § 1-508. 79 Id. 80 Id.