Compliance: No Exception for Government Contractors

Article excerpt

Commercial suppliers of nondefense products and services must also comply with acquisition regulations.

When they think of government procurement, most people picture multibillion-dollar weapons systems. Media coverage of the termination of large defense contracts reinforces this perception, as did the Persian Gulf War. Admittedly, defense is the largest sector of government procurement and is the focus of the American Institute of CPAs audit and accounting guide, Audits of Federal Government Contractors. However, a number of commercial suppliers provide nondefense products and services to the federal government. It is critical for practitioners auditing these companies and for corporate financial executives to be familiar with the government's system and control requirements if they are to operate successfully in this area.

All federal procurement of supplies and services is governed by a precise set of acquisition regulations outlining the framework within which the government and its contractors or prospective contractors operate. The federal acquisition regulation (FAR) is the principal system. Many departments and agencies, such as the Department of Defense and the General Services Administration (GSA), supplement these rules with their own special requirements. All pertinent regulations are available in Code of Federal Regulations (CFR) form from the Superintendent of Documents, Government Printing Office, Washington, D.C. 20402.

Nondefense government contractors often are lulled into a false sense of security; they fail to realize how pervasive the regulatory aspect of government contracting can be. Regulations and requirements apply no matter what product or service a company sells to the government. The chief financial officer of a company selling fighter planes no doubt understands the rules, but the CFO of an office supply company may not recognize the need for strict compliance. This article's purpose is to clarify this confusion, both for independent auditors and for executives with operational and oversight responsibility.

FEDERAL SUPPLY SCHEDULE PROGRAM

The federal supply schedule program (FSSP) is authorized by FAR part 38. Managed by the GSA, the program provides federal agencies with a simplified means of acquiring commonly used supplies and services, including office furniture, copiers, hand tools and computers.

As the primary buyer for all agencies, the GSA tries to obtain the lower prices associated with volume purchases by awarding contracts from which individual agencies fulfill their needs. The Veterans Administration is an exception; it has been authorized by the GSA to award federal supply schedule contracts for medical, dental and veterinary supplies. In doing so, the VA has adopted GSA policies, procedures and forms.

Under the program, ordering agencies

* Issue orders directly to contractors.

* Receive shipments.

* Pay contractors.

* Administer individual orders.

Contracts are awarded in two ways: by sealed bid and by negotiation. In both cases they are listed according to product type and are commonly referred to as schedules. Sealed-bidding procedures allow the government to award contracts solely on the basis of the lowest price offered by a qualified supplier. Companies awarded schedule contracts by sealed bid do not have to comply with the rules governing negotiated contracts.

For negotiated contracts, the offeror submits a proposal that is the basis for price negotiations. The process results in an agreement between the supplier and the government. These are "bread-and-butter" products with recognized brand names.

Four types of schedule contracts are awarded:

* Single award schedule.

* Multiple award schedule (MAS).

* New item introductory schedule.

* International federal supply schedule.

The principal means of contracting is through the MAS program. …