1.  Determine Disclosure, Maintenance, and Review requirements.  The criteria is defined at DFARS 215.407-5-70(b)(2).

    1.1.  Applicability.  The ACO shall apply the disclosure, maintenance and review requirements to large business contractors that meet the regulatory requirements.  A contractor is a large business contractor, if in its preceding fiscal year, the contractor received DoD prime contracts or subcontracts totaling $50 million or more for which cost or pricing data were required.  The ACO shall apply the same requirements to any other large business contractor if in the preceding fiscal year the contractor received DoD prime contracts or subcontracts totaling $10 million or more (but less than $50 million) for which cost or pricing data were required and when the ACO determines it to be in the best interest of the Government (e.g. significant estimating problems are believed to exist or the sales are predominantly Government).  The ACO shall not apply the disclosure, maintenance and review requirements to other than large business contractors.

2.  Ensure Contractors' Disclosure, Maintenance and Review Requirements. The ACO shall (DFARS 215.407-5-70(c)):

    2.1.  Determine the acceptability of the disclosure and system.
    2.2.  Pursue corrective action of any deficiencies.
    2.3.  Ensure that contractors subject to estimating system disclosure:

        2.3.1.  Maintain an acceptable system.
        2.3.2.  Describe the system to the ACO.
        2.3.3.  Provide timely notice of changes in the system.
        2.3.4.  Correct system deficiencies identified by the ACO (DFARS 215.407-5-70(c)(4))

    2.4.  Characteristics of an acceptable estimating system and examples of potentially significant estimating deficiencies are identified at DFARS 215.407-5-70(d).

3.  Conduct Review.  The ACO shall work with DCAA to establish and manage a regular program for reviewing the contractor's estimating system and work with DCAA to conduct the review (PGI 215.407-5-70(e)(1)).  The ACO shall request DCAA to lead a review every three years unless the ACO and DCAA agree to lengthen or shorten the review cycle based on a documented joint risk assessment. 

    3.1.  DCAA shall lead the review team and prepare the team's written report.
    3.2.  The ACO shall:

        3.2.1.  Identify qualified technical specialists to participate on the review (e.g. price/cost analyst, industrial specialist, engineers that are used to evaluate proposal estimates).
        3.2.2.  Coordinate the DCMA technical specialists review activity.
        3.2.3.  Consolidate the DCMA technical specialists findings and recommendations.
        3.2.4.  Prepare a comprehensive written report to DCAA outlining the findings and recommendations of the DCMA technical specialists.

4.  Receive DCAA Audit Report.  When the ACO receives the DCAA audit, the ACO shall ensure that the DCMA technical specialists' findings and recommendations are addressed in the DCAA audit report.

    4.1.  If the DCAA report does not identify deficiencies and the DCMA technical specialists have no findings or recommendations, the ACO shall report the system status as "acceptable."
    4.2.  If the DCAA report does not identify deficiencies but the DCMA technical specialists have findings or recommendations, the ACO should consider those findings and recommendations and make a determination on acceptability of the system following the procedures in paragraph 7 below. 

5.  Notify Contractor of the Results of the Review

    5.1.  Initial notification.  The ACO shall provide a copy of DCAA's report to the contractor and request the contractor to provide a written response in 30 days (PGI 215.407-5-70(f)(2).  Generally, DCAA incorporates contractor comments on its findings and recommendation and its rebuttal to the comments in the audit report. If DCAA incorporated the contractor's comments in the audit report, the ACO should obtain additional information from the contractor as needed.  If DCAA did not incorporate the contractor's comments or the ACO needs additional comments, the ACO shall request comments from the contractor within 30 days of the written notification.  The ACO may grant a reasonable extension; however, estimating system audits are reportable audits subject to the requirements of the Contract Audit Follow-Up Instruction and must be resolved within 6 months. 

6.  Make System Status Determination.  The ACO shall consider all findings and recommendations fully before rendering a decision on the adequacy of the contractor's estimating system.

7. Prepare Contractor Notification Letter

    7.1.  The ACO shall prepare a letter to notify the contractor and the auditor of the determinations.  (ND)  The ACO shall document the following in a supporting memorandum to file:

        7.1.1.  An affirmative statement that the ACO agrees or disagrees with each audit and technical specialist's finding and recommendation.
        7.1.2.  Sound rationale to resolve each audit or technical specialist's findings and recommendations. The rationale must demonstrate that the ACO has considered all appropriate FAR, DFARS and DCMA Instructions related to the issues or questions raised.

    7.2.  If the ACO determines that all or selected portions of the system are inadequate, the ACO shall include in the letter a notice of the ACO's intent to disapprove all or selected portions of the system. The notice shall (PGI 215.407-5-70(f)(4)):

        7.2.1.  Identify the cost elements covered;
        7.2.2.  List the deficiencies that prompted the disapproval; and
        7.2.3.  Be sent to the cognizant auditor, and each contracting and contract administration office having substantial business with the contractor  

8.  Obtain Approval of Contractor Notification Letter

    8.1.  (ND)  The ACO shall obtain approval of the notification letter and supporting memorandum to file from the CMO Contracts Director and any required Contract Management Board of Review (BoR) approval before issuing the letter.  The CMO Contracts Director may delegate this action to a level no lower than the contract team supervisor/leader.  If the ACO does not agree with each audit or technical specialist's findings and recommendations, the action is subject to BoR approval.
    8.2.  (ND)  The CMO Contracts Director shall verify that the ACO followed the procedures for resolving the reportable audit before approving the notification letter.  The CMO Contracts Director may delegate this action to a level no lower than the contract team supervisor/leader.  Refer to paragraph 6 of DCMA Contract Audit Follow-Up Instruction.

9.  Send Contractor Notification Letter

    9.1.  The ACO shall provide copies of the letter to DCAA and each contracting activity that has substantial business with the contractor (PGI 215.407-5-70(f)(5)(iii)).

10.  Prepare Notice of Disapproval.  If the Contractor has not submitted an acceptable corrective action plan or corrected the deficiencies within 45 days, the ACO shall prepare a notice of disapproval for all or selected portions of the contractor's estimating system (PGI 215.407-5-70(f)(5)).

    10.1.  The notice of disapproval shall (PGI 215.407-5-70(f)(5)):

        10.1.1.  Identify the cost elements covered.
        10.1.2.  Identify the deficiencies that prompted the disapproval.

    10.2.  The ACO shall document the following in a supporting memorandum to file:   

          10.2.1.  An affirmative statement that the ACO agreed or disagreed with each audit and technical specialist's finding and/or recommendation.
          10.2.2.  Sound rationale to resolve each audit or technical specialist's findings and recommendations. The rationale must demonstrate that the ACO has considered all appropriate FAR, DFARS and DCMA Instructions related to the issues or questions raised.

11.  Obtain Approval of Notice of Disapproval

    11.1.  (ND)  The ACO shall obtain approval of the determination letter and supporting memorandum to file from the CMO Contracts Director before issuing the notice.  The CMO Contracts Director may delegate this action to a level no lower than the contract team supervisor/leader.
    11.2.  (ND)  The CMO Contracts Director shall verify that the ACO followed the procedures for the disposition of the reportable audit before approving the notice of disapproval. The CMO Contracts Director may delegate this action to a level no lower than the contract team supervisor/leader. Refer to paragraph 7 of DCMA Contract Audit Follow-Up Instruction. 

12.  Issue Notice of Disapproval

    12.1.  The ACO shall issue a notice of disapproval to the contractor.
    12.2.  The ACO shall provide copies of the notice to DCAA and each contracting activity that has substantial business with the contractor ((PGI 215.407-5-70(f)(5)(iii)).

13.  Monitor Contractor Corrective Action.  The ACO shall monitor the contractor's progress in correcting deficiencies. If the contractor fails to make adequate progress, the ACO shall take whatever action is necessary to ensure that the contractor corrects the deficiencies (PGI 215.407-5-70(f)(6)).  Examples of actions the ACO can take are: bringing the issue to the attention of higher level management, reducing or suspending progress payments (see FAR 32.503-6), and recommending non-award of potential contract.

14.  Assess Impact of deficiencies on Individual Pricing Actions.  The ACO or the price/cost analyst should quantify the impact of any estimating system deficiencies on any pricing action that is potentially impacted by any unresolved estimating deficiencies (DFARS 215.407-5-70(g)).  If the ACO or the price/cost analyst believes an unresolved deficiency has no impact or if the impact cannot be quantified then the ACO or price/cost analyst shall state that in a pre-negotiation objective position or pricing report, as appropriate. 

15.  Withdrawal of Disapproval

    15.1.  The ACO will withdraw the disapproval when the ACO determines that the contractor has corrected the significant system deficiencies.  The ACO will notify the contractor, the auditor, and effected contracting and contract administration activities of the withdrawal (PGI 215.407-5-70(f)(7)).
    15.2.  (ND)  The ACO shall obtain approval of the withdrawal of disapproval letter from the CMO Contracts Director before issuing the letter.  The CMO Contracts Director may delegate this action to a level no lower than contract team supervisor/leader.

• DFARS 252.215-7002, Cost Estimating System Requirements
• FAR 15.407-5, Estimating Systems
• DFARS 215.407-5, Estimating Systems
• DFARS 215.407-5-70, Disclosure, maintenance and review requirements
• PGI 215.407-5-70, Disclosure, maintenance and review requirements
• DoD Instruction 7640.02, Policy for Follow-up on Contract Audit Reports

• Process Indicator/s:
  • TBD
• Workload Indicator/s:
  • TBD
• Resource Indicator/s:
  • TBD
• Supplier Indicator/s:
  • TBD

• PLAS Process code:  112

• DCAA Audit Program for Estimating
• DCAA Internal Control Matrix for Estimating 
• MRT Assessment Guides/Workbooks

• AQ - Contracts Community