Cherry Bekaert: Government Contractors Guidance

Listen to Brendan Halloran, a Senior Manager in Cherry Bekaert’s Government Contracting Industry practice who previously spent 10 years at the Defense Contract Management Agency (DCMA), and Curt Smith, a manager in the Firm’s GovCon practice who spent 12 years at the Defense Contract Audit Agency (DCAA), discuss allowability and where contractors might run into audit findings with questioned costs.

Discussion includes:

• What makes a cost allowable, including Reasonableness, Allocability, Cost Accounting Standards (CAS) and terms of the contract
• Direct and indirect costs
• Facilities costs
• Unallowable costs
• Supporting questioned costs

If you need any help in determining or supporting cost allowability, Cherry Bekaert’s GovCon Consultants are available to discuss your situation with you.

Many of our government contracting clients are taxed as a pass-thru entity, generally an LLC that's taxed as a partnership or an S corporation. It is important to plan at both the entity level and the individual level since in the case of pass-thrus, the income is passed down to the individual owners through a Form K-1 regardless of distributions received during the year.

Year-end tax planning should be done to reduce the taxable income that passes down through K1s to the individual return. In the case of a C Corporation, year-end tax planning is helpful to defer taxes or potentially avoid taxes as much as possible.

Listen to John Ure, Carol Marin and Greg Marx, Tax Partners in Cherry Bekaert’s Government Contracting Industry practice and Private Client Services group, discuss tax-saving steps government contractors can take before the year ends.

Discussion includes:

• Methods of reducing current year income
• Special regulations and thresholds for SBA 8(a) program government contractors, including excessive withdrawals
• How retirement plans can be used to help manage income, including VIP retirement plans
• Research & Development (R&D) tax credit: qualifying activities and types of contracts not eligible for the credit
• New limitations coming back into play for 2021
• New tax legislation pending in the US House and Senate

If you need any help with year-end tax planning, Cherry Bekaert tax advisors are available to discuss your situation with you. We welcome the opportunity to work with you to identify the best tax positions and opportunities for you and the company.

The Incurred Cost Submission (ICS) is an administrative hurdle and something that government contractors do not look forward to putting together every year. However, it is required to be submitted six months after the end of a company’s fiscal year for any contractor who has cost-type and T&M contracts that contain the Allowable Cost and Payment Clause.

Listen to Eric Poppe, Senior Manager in Cherry Bekaert’s Government Contracting practice and Rich Wilkinson, Director of Product Marketing at Unanet discuss the importance of the calculation of a Company’s indirect rates and Incurred Cost Submissions and the consequences for not having final rates or late submissions, as it is more than just an administrative exercise. 

Don’t put it off and don’t ignore the ICS. If you think you don’t have to submit, confirm with your contracts manager to identify all your active contracts containing Federal Acquisition Regulation (FAR) 52.216-7, Allowable Cost & Payment. 

If you haven’t already, catch up on part one, part two and part three of our four-part series:

• Indirect Rates – More than Just a Math Exercise: Part One
• Indirect Rates – Monitoring and Best Practices in Calculating Your Rates: Part Two
• Indirect Rates – The Close Out Process: Part Three

On November 4, the Department of Defense (DoD) announced the strategic direction of the Cybersecurity Maturity Model Certification (CMMC) program, which marks the completion of an internal program assessment led by senior leaders across DoD. 

CMMC 2.0 brings about a number of changes which DoD will be pursue through the rulemaking process and will include public comment periods. 

Listen to Neal Beggan, a Principal in Cherry Bekaert’s Information Assurance & Cybersecurity Practice, selected as one of the first Provisional Assessors nationwide by the CMMC Accreditation Body, and Eric Poppe, a senior manager in the Firm’s Government Contractor Services Group, as they discuss DoD’s modifications and their potential impact on contractors and subcontractors in the defense industrial base (DIB).

 Changes include:

•  Eliminating levels 2 and 4 of the framework and using National Institute of Standards and Technology (NIST) cybersecurity standards
• Companies at Level 1, and a subsection of companies at Level 2 will only be required to demonstrate compliance through annual self-assessments
• Triannual third-party assessments at Level 2 for critical national security information, as well as triannual government-led assessments at Level 3
• Increase in oversight of professional and ethical standards of third-party assessors
• New waiver processes for select requirements - DoD indicated:
  •  “Under certain limited circumstances”, companies can make “Plans of Action & Milestones (POA&Ms)” to achieve certification
  • “Under certain limited circumstances”, waivers to CMMC requirements will be allowed

 DoD is also suspending the current CMMC pilot program for select contracts and will not approve any CMMC requirements in DoD solicitations while the rulemaking is underway. The Defense Department further indicated that it is looking at providing incentives to contractors who voluntarily obtain certification during the interim period and more information will be forthcoming. 

Listen to Susan Moser, Partner and Leader of Cherry Bekaert’s Government Contracting practice, and Eric Poppe, a Senior Manager in the Government Contracting practice, discuss winning an 8(a) competitive contract in episode five of our podcast series on the Small Business Administration’s (SBA) 8(a) Business Development program.

In part five, they discuss:

• An overview of what Section 8 of the Small Business Act authorizes
• Best practices for finding 8(a) competitive procurement opportunities
• Single award vs. multiple award contracts, and what to be aware of when considering teaming partners 
• Best practices and considerations when putting together a proposal, from identifying teaming partners early on, to understanding the Federal Acquisition Regulation (FAR) compliance requirements and contract types, to cost and pricing and indirect rates.
• Benefits of requesting a debrief on your proposal

If you haven’t already, catch up on other episodes in our podcast series discussing various aspects of the Small Business Administration’s (SBA) 8(a) Business Development Program:

• Part I: The SBA 8(a) Business Development Program – What Is It and What Are the Requirements?
• Part II: The SBA 8(a) Business Development Program Application Process and Requirements
• Part III: What Are the Compliance Requirements for 8(a) Certified Companies?
• Part IV: Winning an SBA 8(a) Sole Source Award Contract – What’s Involved and What to Know

Our Government Contractor Services group has an in-depth understanding of the 8(a) program and advises 8(a) government contractors through each step of the process to add value and anticipate ongoing opportunities. From the initial important decisions made in becoming an 8(a), to the first contract, to how the company is growing throughout the life of the program.

Listen to Susan Moser, Partner and Leader of Cherry Bekaert’s Government Contracting practice, Deb Walker, Compensation & Benefits Leader, and John Ford, Senior Consultant in the Firm’s Government Contracting practice discuss some of the unique considerations for government contractors around executive compensation, including financial reporting, tax considerations (both to company and employee) and allowability issues, as well as commonly asked questions.

Topics discussed include:

• The basics: where compensation is addressed in the Federal Acquisition Regulation (FAR) (Part 31), reasonableness and some of the current limitations regarding executive compensation.
• An explanation of the required disclosures regarding subcontractors for the five mostly highly compensated individuals.
• Common executive compensation plans implemented by government contractors: bonus plans, incentive compensation plans, stock option plans, Stock appreciation rights (SARs), phantom stock and deferred compensation plans.
• The allowability of various executive compensation plans.

The Small Business Administration’s (SBA) 8(a) Business Development program offers small, disadvantaged businesses tremendous opportunities for sole source and limited competition contracts. During the program, participants can be awarded sole source contracts up to $4.5 million for goods and services ($7.5 million for manufacturing). But what does the contracting process entail and what should 8(a) contractors know to avoid mistakes?

Listen to Susan Moser, Partner and Leader of Cherry Bekaert’s Government Contracting practice and Eric Poppe, a Senior Manager in the Government Contracting practice discuss the 8(a) contracting process and sole source awards, including certified cost and pricing data to determine fair market price, preaward surveys and best practices.

If you haven’t already, catch up on other episodes in our podcast series discussing various aspects of the Small Business Administration’s (SBA) 8(a) Business Development Program:

Part I: The SBA 8(a) Business Development Program – What Is It and What Are the Requirements?

Part II: The SBA 8(a) Business Development Program Application Process and Requirements

Part III: What Are the Compliance Requirements for 8(a) Certified Companies?

In future 8(a) segments, we will discuss competitive contracts and the All Small Mentor Protégé Program.

Our Government Contractor Services group has an in-depth understanding of the 8(a) program and advises 8(a) government contractors through each step of the process to add value and anticipate ongoing opportunities. From the initial important decisions made in becoming an 8(a), to the first contract, to how the company is growing throughout the life of the program.

It’s year end and your company has closed out its fiscal year. What should you do from an indirect rate standpoint? Listen to Eric Poppe, Senior Manager in Cherry Bekaert’s Government Contracting practice and Rich Wilkinson, Director of Product Marketing at Unanet discuss the importance of indirect rates and the close out process.

Rate variance is consequential. It has a half-life of about a year. If the government owes you $1K in rate differential at the end of the year and you bill it immediately, you can normally expect to collect it all. If you wait until next year, however, some projects may be out of funding. A project office may push back on what they now see as a “late invoice.” The Defense Contract Audit Agency will often refuse to sign-off on it saying that the rate differential invoices should wait until contract close out (which could be three or four years).

On average, at the one-year mark, that $1k in rate variance is probably worth $500 or less. After another year, the collectability falls still further. It’s now probably worth $250 or less. The $1k example is bad enough, but what if the variance is $1M – or more? 

By the way, this cycle isn’t over. There is still the dreaded Incurred Cost Submission to do to finalize the rates. But the pressure of negotiating final rates is eased a great deal if most of the variance was collected at year end. Remember, it’s a never-ending cycle. As one-year ends, another begins.

Steps for closing out the rate year:

1. Calculate the (near) final rates as soon as practical after the close of the last month.
2. Immediately submit a request for revised provisional rates equal to the actual rates for the year.
3. Immediately bill the rate differential as a separate invoice between the last (provisional) rate billing of the year and the first vouchers of the new year.

If you haven’t already, catch up on part one and two of the series where we discuss why government contracting firms need indirect rates and where and when to start, as well as monitoring and best practices in calculating your rates:

• Indirect Rates – More than Just a Math Exercise: Part One
• Indirect Rates – Monitoring and Best Practices in Calculating Your Rates: Part Two 

Listen to Eric Poppe, a Senior Manager in Cherry Bekaert’s Government Contracting practice, and Brendan Halloran, also a Senior Manager in the Firm’s Government Contracting practice who previously spent 10 years at the Defense Contract Management Agency (DCMA), including 7 years as a Divisional Administrative Contracting Officer (DACO), discuss proposal pricing in response to solicitations, from both a government contractor perspective and an audit and government evaluation perspective, including compliance considerations and the planning and estimating processes.

Our government contracting consulting professionals have worked extensively in the Federal contract arena and provide proposal preparation assistance, including cost and pricing proposals in response to RFPs, cost impact studies, forward pricing rate proposals, GSA Schedules, provisional rate proposals, SBIR proposals, Small Business (“SBA”) set aside programs and compliance (8a, Hubzone, SDVOB, Woman-Owned) and training to help contractors navigate the procurement process. 

Join Cherry Bekaert’s Government Contractor Services Group for part three of our new podcast series discussing various aspects of the Small Business Administration’s (SBA) 8(a) Business Development Program. In this third episode, Brynn McNeil, an Assurance Partner in Cherry Bekaert’s Government Contracting practice and John Ure, Tax Partner and member of the Firm’s GovCon practice discuss the compliance requirements 8(a) companies must follow once they have been certified by the Small Business Administration (SBA), including:

• An Annual Update Review (Form 1450)-8(a) based on the 8(a)’s annual program year, disclosing certain company data to remain in the program, including progress on meeting goals and annual personal financial statements for the individuals upon whom the 8(a) eligibility is based showing net worth, fair market value of all assets, personal income, and excessive withdrawal limitations
• Required company financial statements:  
  • 8(a) participants with > $10 million in revenue must submit annual audited financial statements within 120 days of the company’s fiscal year.
  • 8(a) participants with revenue between $2M and $10M must submit annual reviewed financial statements within 90 days of the company’s fiscal year.
  • 8(a) participants with < $2M in revenue must provide an annual in-house or compiled financial statement within 90 days after the close of the company’s fiscal year

If you haven’t already, catch up on part one and two of the series where we discuss the overall SBA 8(a) program and eligibility, and the application process and requirements:

Part I: The SBA 8(a) Business Development Program – What Is It and What Are the Requirements?

Part II: The SBA 8(a) Business Development Program Application Process and Requirements

In future segments, we will discuss winning sole source and competitive contracts and the All Small Mentor Protégé Program.

Our Government Contractor Services group has an in-depth understanding of the 8(a) program and advises a number of 8(a) government contractors through each step of the process to add value and anticipate ongoing opportunities. From the initial important decisions made in becoming an 8(a), to the first contract, to how the company is growing throughout the life of the program.