Why business systems and internal controls are key to winning DoD contracts

Approved business systems increase award eligibility, process efficiencies and trust from the government customer.

In brief

• Successful pursuit of a DoD contract is contingent upon the ability to demonstrate business system and internal control requirements.
• Disapproved systems could result in payment withholds and ineligibility to submit bids, which may impact cash flow and lead to a damaged reputation.

Over the past several years, the government contracting regulatory environment has changed substantially. As highlighted in a new article by the EY Government Contract Services team, not only are contractors subject to government-specific business system requirements, but contractors are being held to increasingly higher standards of compliance. Meanwhile, internal and external stakeholders continue to seek cost savings. While the government does not mandate the use of specific software systems or applications, contractors are expected to have fundamental processes and controls in place to meet specific contract business system requirements.

As organizations develop and enhance their government market strategy, specific attention should be given to control requirements such as those mandated by the U.S. Department of Defense (DoD). Developing, maintaining and assessing controls for these and other contract requirements go beyond an exercise of compliance. Effective controls and systems are often prerequisites for contract eligibility.

The DoD implements the rules related to contractor business systems through Defense Federal Acquisition Regulation Supplement (DFARS) contract clause 252.242-7005. This includes contract withholds for contractors found to have significant deficiencies within one or more of their applicable business systems.

In addition to the DFARS business system requirements, contractors are expected to have internal controls in place to address the unique requirements of government contracting. These controls should govern the entire lifecycle of a government contract, from making a bid/no-bid decision to contract closeout. While a standard commercial financial control framework will address many of the financial aspects of accounting for government contracts, it will not address the risks and controls that stem from the additional statutory and regulatory requirements related to the pricing, administration and accounting of government contracts.