Government Contracting Industry Alert: Proposed LPTA Contract Limitations, Service Contract Act Compliance, and More

New Proposal Would Further Limit the Use of LPTA Contracts

The Professional Services Council and the IT Alliance for the Public Sector recently took issue with a $17.5 billion Encore III contract that was issued through the “lowest price technically acceptable” (LPTA) selection process by the Defense Information Systems Agency (DISA). The contract contains multiple deliverables, including application development, cybersecurity, and business process reengineering, that seem to contradict where LPTA contracts are most useful.

This is just one example of an issue that may soon see a resolution from Congress. A bipartisan-supported bill (H.R.4999 – Promoting Value Based Defense Procurement Act) sponsored by Representatives Mark Meadows (R-N.C.) and Don Beyer (D-VA) proposes to redefine the Federal Acquisition Regulations.

The bill aims to provide more innovation, better outcomes, and best value for taxpayers in programs and contracts that are issued through the LPTA selection process. Many government contractors, government agencies, and government officials now see that LPTA contracts have not always delivered the outcomes that were initially expected. Cheapest does not always equate to the best value in procuring professional services. In fact, we would argue that it is rarely the case.

Know the Rules If Your Contract Requires Compliance with the Service Contract Act

One of our clients just received a letter from the Department of Labor that said they were going to be audited for compliance under their contracts that were subject to the Service Contract Act (SCA). Under this Act, contractors and subcontractors performing services on prime contracts in excess of $2,500 are required to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor’s collective bargaining agreement.

The Department of Labor issues wage determinations on a contract-by-contract basis in response to specific requests from contracting agencies. These determinations are typically incorporated into the contract.

There are very specific reporting requirements under the SCA and it is imperative that employers agree to these terms and comply with the reporting requirements, otherwise they risk paying legal and professional fees to become compliant along with potential penalties and interest.

If you are contemplating proposing on a contract that includes SCA compliance, we strongly recommend you consult a professional that is well versed in its reporting requirements if you do not already have that expertise.

How Kreischer Miller Helps Government Contractors

Here are a few recent examples of tangible returns that our clients have realized by engaging our services:

  • We recently completed a Quality of Earnings Report for a client that was contemplating a sale to a competitor. After completing the report and sharing it with the potential buyer, the buyer decided to raise its offer price by over $5 million.
  • In completing a reviewed financial statement for a client, we noticed that the billing was not consistent with the way the provisional rates were being calculated. After some research and analysis by the CFO, the client is now in the process of revising its historical billing to recoup over $180,000 in under billings to the government.
  • In reviewing the tax returns of two new clients, we noticed an opportunity to change the methodology for how income taxes were calculated. The results deferred over $2 million in current income taxes.
  • In completing an audit of a large 401(k) plan, our team reviewed the plan’s administrative costs and engaged a third party to compare the costs to other plans. After completion of the project and a discussion with the current provider, the provider agreed to supply over $100,000 in annual credits toward future services.
  • A client was recently challenged by DCAA for not allocating G&A costs to unallowable costs in other cost pools. We discussed the issue with the controller and another consultant, and concluded that the costs in question should have been included in the G&A costs. The auditor from DCAA concurred, so the amounts that would have been due back to the government were reduced accordingly.
  • Many of our clients are also exploring the benefits of establishing an ESOP. We work with a number of ESOP-structured companies as well as two government contractors that are currently exploring this alternative. We have an established team of ESOP specialists that have developed templates to help organizations evaluate the various options available within an ESOP.
  • We have assisted various clients in the last year with completing acquisitions with an aggregate transaction value of over $20 million.

These are just a few examples of how we strive to create a return on investment for our clients. Feel free to contact us if you think you could benefit from our expertise in government contracting.

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If you have any questions or comments about this topic, please contact David E. Shaffer, Director, Audit & Accounting and Government Contracting Industry Group Leader at dshaffer@kmco.com or 215-441-4600.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.