Big Brother is Watching: Heightened Oversight is Here to Stay
The contracting community continues to experience heavy reporting requirements and oversight as federal government customers look to drive efficiencies by doing more, with less resources. Recognizing the importance of federal contracting compliance as a steward for taxpayer dollars, compliance is becoming increasingly burdensome for small and mid-sized contractors.
The costs associated with these oversight initiatives and incurred by contractors are becoming more and more impactful as the level of scrutiny intensifies. “This is a swinging pendulum, and right now it’s swinging unstoppably toward real-time transparency,” remarked Reid Jackson, CEO of Compusearch (a Dulles-based provider of acquisition software) to the Washington Business Journal this week. “People want to see all of the data, and that has a dramatic cost for contractors forced to spend a greater percentage of time reporting what they’re doing rather than delivering what they promised, that’s the trade-off.” These costs directly impact bottom lines in an already pressured environment on profits and allocation of resources.
We envision the most pressing compliance concerns to include (i) continued restrictions on cost-type contracts and increased scrutiny of contractor accounting systems to ensure fees are properly detailed; (ii) increased reporting requirements regarding subcontracting arrangements; (iii) increased access requirements for Defense Contract Audit Agency to contractor internal audit reports; (iv) longer procurement schedules and proposal requirements to ensure procurement procedure compliance; and (v) greater scrutiny over the categorization of 1099 vs. part time employees and Service Contractor Act compliance. Not surprisingly, these topics are increasingly the focus of buyer diligence from an M&A perspective, as potential suitors look to uncover unknown contingent liabilities. Now more than ever it’s important that contractors of all sizes invest in the controls to monitor compliance, as it not only may impact value from a sale perspective, but more importantly is good business practice.