What is DCAA compliance, and does a fixed-price sub ever need an approved accounting system?

Your firm will likely need to upgrade its accounting system to handle the requirements of a cost-plus subcontract. The Defense Contract Audit Agency (DCAA) reviews accounting systems to ensure contractors can properly track and report costs, especially for cost-reimbursement contracts, as described in FAR Part 31. This includes segregating direct and indirect costs and tracking costs by contract line item. While a fixed-price subcontract usually does not require a DCAA-approved accounting system, a prime contractor might still ask for cost breakdowns to ensure your pricing is fair and reasonable, even for a fixed-price sub-award. My shop sticks to fixed-price work for this reason; the compliance burden for cost-plus is significant.

Your company will need a DCAA-compliant accounting system for a cost-plus subcontract because the Defense Contract Audit Agency (DCAA) audits incurred costs on cost-reimbursement contracts. For cost-plus contracts, the government reimburses the contractor for allowable costs incurred, plus a fee. This means DCAA will audit your costs to ensure they are allowable, allocable, and reasonable according to the Federal Acquisition Regulation (FAR) Part 31, which covers contract cost principles. DCAA reviews your accounting system to ensure it can segregate direct and indirect costs, track costs by contract, and comply with other government accounting standards. A fixed-price subcontract generally does not require a DCAA-approved accounting system because the price is set regardless of the actual costs incurred by the subcontractor. The risk is on the contractor to manage costs within the agreed-upon price. However, if that fixed-price subcontract is part of a larger cost-reimbursement prime contract, the prime contractor might still need to ensure your costs are reasonable for their own DCAA audits. Since your potential subcontract is cost-plus, you will need to upgrade from QuickBooks to a system that can meet DCAA requirements. This is a significant undertaking.