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IN THIS ISSUE:
· Strategic Contracting
· Changes in Productivity
· The FAR Corner
· Cost Accounting Standards
· Data Dump
· Upcoming Events
· Thought for the Day
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Gaffey & Associates Government Contracting Service Group Open-Enrollment Training Seminars
Our Government Contracting Services Group is developing a series of open enrollment and in-house seminars for presentation in 2005 and 2006.
GCTraining – Introduction to Federal Contracting
Date: September 29-30, 2005
Location: Gaffey & Associates
McLean, VA
The Potomac Area Chapter of the IMA along with the Greater Washington Society of CPAs presents
"Current Issues in Government Contracting"
Date: Thur, October 20, 2005
Location: Arlington, VA
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| On August 4, 2005, President Bush, as he has done before, outlined an extensive list of initiatives his government is doing: fighting terrorists, developing energy policy, enacting legal reforms and negotiating free trade agreements, to name a few. But when it comes to the big stuff, he said, Uncle Sam is a heartless old man. "We understand that government—government can't love," Bush said. "Government can pass law; government can hand out money; but government cannot put heart—hope in a person's heart or a sense of purpose in a person's life. That's done when a loving citizen puts their arm around somebody who hurts and says, how can I help you? What can I do to make your life better?" |
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Welcome to the inaugural issue of Gaffey & Associates’ Government Contractor Newsletter. Its purpose is to provide you with executive-level in-sight into government contract accounting, compliance, and contract administration issues. When coupled with the hands-on experiences of our professional staff it should become a value-added resource for you and your organization.
Each issue will contain current topical information, editorial comments on issues impacting government contracting and information on upcoming events. Each issue sent directly to you electronically, will be posted on our website at www.GaffeyCPA.com along with GCAlert, our express notification of significant happenings in the government contracting arena of an immediate nature.
If you would like more information on the subjects included in this or any of our future issues you can contact:
| STRATEGIC CONTRACTING // A Look at BPO |
Strategic Contracting denotes a business philosophy designed to facilitate success.
A strategy to:
· Concentrate organizational resources on those functions directly associated with the delivery, on time, of quality products or services
· Benefit from the latest in technologies and best business practices
· Reduce or avoid costs
· Reduce overall processing times
· Improve operations.
Commonly referred to as Business Process Outsourcing (BPO) it has grown significantly over the last three years and includes such functions as: human resources, indirect procurement, sales and marketing, finance, and administration.
Even though strategic contracting may appear to be an ideal alternative, there are numerous precautions and challenges that must be considered to assess whether outsourcing is appropriate. It is important to keep in mind the level of potential financial and compliance risk involved, the existing controls that may become ineffective due to time, distance and cultural differences, and the additional compliance monitoring and corporate governance required.
Statistics dictate that nearly a quarter of all outsourcing relationships fail in any given two-year period and nearly half fail within five years. While these statistics may hinder a firm’s decision when considering outsourcing, taking the appropriate precautions can prevent this from occurring. A firm can formulate a strategy that is adequate, appropriate, and realistically feasible for implementation purposes.
| CHANGES IN PRODUCTIVITY // An Editorial Comment |
In the days before dirt it was an established norm to consider employees to be 85% productive (i.e., that they were doing non-productive things approximately 1.2 hours per 8 hour day). Recent surveys performed by America Online and Salary.com showed that on average employees waste 2.09 hours per day, not counting lunch. This represents a 74% increase in non-productive or lost-time. While employers do not expect to get eight hours of non-stop work out of an employee (current expectations are 7.06 hours), these surveys indicate that worker’s are wasting more than twice the time that is expected. What is the main culprit? Personal Internet use! Think about this when determining manloading or developing hourly pricing rates.
Payment Withholding
A final rule has been issued removing the mandatory requirement that a contracting officer withhold 5 percent of the payments under time-and-materials and labor-hour contracts, unless it is necessary to withhold payment to protect the Government’s interest or otherwise prescribed in the contract schedule. This final rule also amends FAR guidance to require the use of a contract modification to withhold payment, which states that the withholding up to a $50,000 ceiling is to be made by the contractor prior to the submission of their vouchers and not by the Government payment office. It is noted that this clause does not preclude the Government from withholding other amounts due to non-performance, delivery of non-conforming goods or services, or other failure(s) to comply with contract requirements. The ceiling amount of withholding applies to the entire contract and not to each individual order. This final rule is effective August 26, 2005. The complete text can be found at www.acqnet.gov/far (FAC 2005-5, FAR Case 2004-003). It impacts FAR 32.111(a)(7)(iii) and FAR 52.232-7(a)(2).
Lump-Sum Relocation Cost Reimbursements
FAR 31.201-2(d) states “A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in the subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported.”
FAR 31.201-3(a) states in part “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.”
| COST ACCOUNTING STANDARDS |
Accounting for the Costs of ESOPS
On July 22, 2005, the Cost Accounting Standards Board issued a Notice of Proposed Rulemaking (NPR) regarding the accounting for costs of employee stock ownership plans (ESOPs) sponsored by government contractors. The proposed amendments to the Cost Accounting Standards (CAS) address issues concerning the recognition of the costs of ESOPS under government cost-based contracts and subcontracts and provide criteria for measuring the costs of ESOPs and their assignment to cost accounting periods. Comments are due by September 20, 2005 and it is suggested that they be submitted electronically to casb2@omp.eop.gov.
The full text of the NPR and its background and public comments can be found in the Federal Register, July 22, 2005 (Volume 70, Number 140), Pages 42293-42298.
The Federal Register can be accessed at www.gpoaccess.gov.
Executive Compensation
The maximum executive compensation amount for FY2005 has been benchmarked at $473,318. It represents the median amount of compensation accrued for the top five highest paid executive over a recent twelve month period for publicly-traded companies with annual sales exceeding $50 million. The previous compensation cap for FY2004 was $432,851. The FY2005 cap represents a rather significant 9.3% increase over FY2004.
Compensation for personal services includes all remuneration paid currently or accrued, in whatever form and whether paid immediately or deferred, for services rendered by employees to the contractor during the applicable fiscal period. It includes, but is not limited to, salaries; wages; directors' and executive committee members' fees; bonuses (including stock bonuses); incentive awards; employee stock options, and stock appreciation rights; employee stock ownership plans; employee insurance; fringe benefits; contributions to pension, other postretirement benefits, annuity, and employee incentive compensation plans; and allowances for off-site pay, incentive pay, location allowances, hardship pay, severance pay, and cost of living differential.
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