With hundreds of renewals and extensions on the horizon for the GSA Schedules program, pre-award audits won’t be far behind, especially for larger companies or those that haven’t recently been audited.  Here are three current audit focus areas of which contractors need to be aware and prepared for.

1.  Section 889B compliance:  This should come as no surprise to industry given the current market emphasis on cybersecurity.  Companies must be prepared to show that they have recently conducted a “reasonable inquiry” of their systems to identify products from Huawei, ZTE, Hangzhou, and other prohibited companies and remove them from their networks.  Who conducted the review, when it was conducted, and the processes used are all reportedly part of the audit.

2.  Asking for Cost Build Up Information To Support Labor Rates:  Amazingly, GSA IG auditors are reportedly asking for cost-type data to determine whether labor rates on price-based contracts are fair and reasonable.  To be clear:  Schedule contracts are overwhelmingly NOT cost-based. Cost build ups have nothing to do with over 99% of Schedule contracts. Any contractor asked to provide such information should push back and consult with counsel before responding.  This information seems out of bounds in the Schedules arena.

3. Labor Rate Qualifications.  Here, GSA auditors are looking at what constitutes “relevant” experience companies use to justify labor rates.  Not surprisingly, they have a narrower definition of “relevant” than industry may.  In addition, contractors are reminded that if labor qualifications at the contract level stipulate a certain amount of formal education, that cannot be swapped out at the task order level for professional experience, no matter what the customer agency CO says.  The GSA IG’s position is that the definition of the labor rate at the contract level is what controls.  Audits are serious business and companies should most definitely prepare in advance.  Consultation with outside consultants and counsel is highly recommended.  This is one area of government contracting where it is not safe to “go it alone”.