Some contractors would be exempt from oversight under proposal

Certain federal contractors would no longer have to follow certain oversight and accounting rules on contracts worth up to $200 million under legislation being drafted by Rep. Tom Davis, R-Va., chairman of the House Government Reform Committee.

Currently, contractors must follow federal bookkeeping rules, known as cost accounting standards, on most contracts worth more than $7.5 million. The rules are intended to keep the government from being overcharged.

Cost accounting standards do not apply to contracts governed by Part 12 of the Federal Acquisition Regulation (FAR), designed for commonly available "commercial" items that need less oversight. Part 12 contracts are supposed to be firm, fixed price contracts that require the government and vendor to agree to a set price for the service to be delivered.

Under the Davis proposal, certain contractors would no longer need to follow cost accounting standards on contracts worth up to $200 million. The exemption would cover contractors that do at least 75 percent of their business with private firms, or contractors that do at least three-quarters of their federal business through Part 12 contracts.

The proposal would essentially afford Part 12 treatment to companies that do a minority of their business with the government, or companies that already are using Part 12 contracts for a majority of their work. In Davis' view, these companies are offering widely available, commercial-type services, so they should not have to meet arcane government accounting rules when they contract with Uncle Sam.

These companies would be eligible for sole source, or noncompetitive, contracts, although the contracts would have to follow the firm, fixed price methodology, according to Davis spokesman David Marin.

"This is about saving money for the government and the taxpayer," said Marin, explaining that companies often must design new accounting systems to comply with the federal accounting rules.

But without competition or accounting requirements, the government will be overcharged on big-ticket contracts, said Danielle Brian, executive director of the Project on Government Oversight, a government watchdog group. "There is no market out there, so without federal accounting standards, there is no check to prevent contractors from overcharging," she said.

Cost accounting standards simply require contractors to provide basic pricing information so the government can tell if it's being overcharged, she added. "It requires contractors to provide information about how much it costs to produce the item so they can see how much profit they're getting."

Until 1999, most contracts worth more than $500,000 were subject to the accounting standards. That year, the threshold was raised to $7.5 million after recommendations from a government-industry panel. "To raise it to $200 million is just insulting," said Brian.

Stan Soloway, president of the Professional Services Council, an Arlington, Va.-based contractors' association, said the rules of firm, fixed-price contracting will protect taxpayers from unnecessary charges. Soloway added that many companies avoid contracting with the federal government because of its accounting requirements.

"For many companies it is considered a disadvantage to do business with the government because you have to maintain a parallel accounting system to comply with [cost accounting standards]," he said. "Federal agencies are only disadvantaging themselves by keeping them out of the marketplace."

The provision is part of Davis' forthcoming Service Acquisition Reform bill, which will promote share-in-savings contracting and provide new training for the acquisition workforce, according to a summary of the draft legislation obtained by Government Executive. Davis hopes to introduce the legislation later this month.