Government Audit Rights

A characteristic of government contracts is the government’s audit privilege. The Defense Contract Audit Agency (DCAA) is the agency that performs contract audits for the Department of Defense (DOD). The Agency provides a full range of services related to negotiation, administration, and settlement of contracts and subcontracts to all DOD entities responsible for acquisition and contract administration.

The DCAA’s major points of focus are identifying and evaluating all activities that contribute to, or have an impact on, proposed or incurred costs of government contracts. Early in the contracting process, DCAA performs pre-award surveys that assess a prospective contractor’s ability to perform a proposed contract. The contractor’s financial capability to perform the contract, the adequacy of the firm’s accounting system and the ability to comply with government regulations are the objectives of such a survey. The DCAA auditors will review the contractors accounting system using an evaluation checklist (Standard Form 1408 Preaward Survey of Prospective Contractor Accounting System).

The government has broad statutory and contractual authority to review its contractor’s books, records, or documents to verify its costs or pricing data.

The “Audit and Records-Negotiations” clause, FAR 52.215-2, required to be included in all negotiated contracts by FAR 15.209(b), unless exceptions apply, also authorizes the Government to examine a contractor’s books, records, documents, or other data in order to perform an adequate evaluation of the cost or pricing data submitted.

The regulations, FAR 15.403-5(a)(4), also permit the Government to include in solicitation a provision allowing examination of books, records, or factual information anytime before or after award.

Government is granted pre-award access to all documents pertinent to verifying request for exception and determining price reasonableness, but excluding cost or profit information.

TINA authorizes the Government to examine records of a contractor or subcontractor for purposes of evaluating the accuracy, completeness, and currency of cost or pricing data. This right of access expires three years after final payment and extends to records related to:

• The proposal for the contract or subcontract;

• The pricing of the contract or subcontract; or

• The performance of the contract or subcontract

Clauses at FAR 52.215-20 52.215-20  Requirements for Certified Cost or Pricing Data and Data Other Than Certified Cost or Pricing Data. (for initial awards) and -21 (for modifications) provide that the offeror grants the CO or an authorized representative access to such documents.

FAR 52.215-2 - Audit and Records - Negotiation established the government's basic right to audit contracts for allowability of costs and defective pricing.