10 U.S.C. § 3841 — Examination of records of contractor

Page 2570 TITLE 10—ARMED FORCES § 3841 training to appropriate government officials on the data that is produced by contractor business systems and the manner in which such data should be used to effectively manage Department of Defense programs. ‘‘(f) RULE OF CONSTRUCTION.—Nothing in this section shall be construed to prohibit an official of the Depart- ment of Defense from reviewing, approving, or dis- approving a contractor business system pursuant to any applicable law or regulation in force as of the date of the enactment of this Act during the period between the date of the enactment of this Act and the date on which the Secretary implements the requirements of this section with respect to such system. ‘‘(g) DEFINITIONS.—In this section: ‘‘(1) The term ‘contractor business system’ means an accounting system, estimating system, purchasing system, earned value management system, material management and accounting system, or property management system of a contractor. ‘‘(2) The term ‘covered contractor’ means a con- tractor that has covered contracts with the United States Government accounting for greater than 1 per- cent of its total gross revenue, except that the term does not include any contractor that is exempt, under section 1502 of title 41, United States Code, or regula- tions implementing that section, from using full cost accounting standards established in that section. ‘‘(3) The term ‘covered contract’ means a contract that is subject to the cost accounting standards pro- mulgated pursuant to section 1502 of title 41, United States Code, that could be affected if the data pro- duced by a contractor business system has a material weakness. ‘‘(4) The term ‘material weakness’ means a defi- ciency or combination of deficiencies in the internal control over information in contractor business sys- tems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis. For purposes of this paragraph, a reasonable possibility exists when the likelihood of an event oc- curring— ‘‘(A) is probable; or ‘‘(B) is more than remote but less than likely. ‘‘(5) The term ‘approved purchasing system’ has the meaning given the term in section 44.101 of the Fed- eral Acquisition Regulation (or any similar regula- tion). ‘‘(h) DEFENSE CONTRACT AUDIT AGENCY LEGAL RE- SOURCES AND EXPERTISE.— ‘‘(1) REQUIREMENT.—The Secretary of Defense shall ensure that— ‘‘(A) the Defense Contract Audit Agency has suffi- cient legal resources and expertise to conduct its work in compliance with applicable Department of Defense policies and procedures; and ‘‘(B) such resources and expertise are provided in a manner that is consistent with the audit inde- pendence of the Defense Contract Audit Agency. ‘‘(2) REPORT.—Not later than 180 days after the date of the enactment of this Act, the Secretary shall sub- mit to the Committees on Armed Services of the Sen- ate and the House of Representatives a report on the steps taken to comply with the requirements of this subsection. ‘‘(i) CONSENT TO SUBCONTRACT.—If the contractor on a Department of Defense contract requiring a con- tracting officer’s written consent prior to the con- tractor entering into a subcontract has an approved purchasing system, the contracting officer may not withhold such consent without the written approval of the program manager.’’ [Pub. L. 115–91, div. A, title X, § 1081(d), Dec. 12, 2017, 131 Stat. 1599, provided that the amendment made by section 1081(d)(8) to section 893(c) of Pub. L. 114–328 (which amended section 893 of Pub. L. 111–383, set out above) is effective as of Dec. 23, 2016, and as if included in Pub. L. 114–328 as enacted.] § 3841. Examination of records of contractor (a) RECORDS DEFINED.—In this section, the term ‘‘records’’ includes books, documents, ac- counting procedures and practices, and other data, regardless of type and regardless of wheth- er such items are in written form, in the form of computer data, or in any other form. (b) AGENCY AUTHORITY.— (1) The head of an agency, acting through an authorized representative, is authorized to in- spect the plant and audit the records of— (A) a contractor performing a cost-reim- bursement, incentive, time-and-materials, labor-hour, or price-redeterminable con- tract, or any combination of such contracts, made by that agency under a chapter 137 leg- acy provision; and (B) a subcontractor performing any cost- reimbursement, incentive, time-and-mate- rials, labor-hour, or price-redeterminable subcontract or any combination of such sub- contracts under a contract referred to in subparagraph (A). (2) The head of an agency, acting through an authorized representative, is authorized, for the purpose of evaluating the accuracy, com- pleteness, and currency of certified cost or pricing data required to be submitted pursu- ant to chapter 271 of this title with respect to a contract or subcontract, to examine all records of the contractor or subcontractor re- lated to— (A) the proposal for the contract or sub- contract; (B) the discussions conducted on the pro- posal; (C) pricing of the contract or subcontract; or (D) performance of the contract or sub- contract. (c) DCAA SUBPOENA AUTHORITY.— (1) AUTHORITY TO REQUIRE THE PRODUCTION OF RECORDS.—The Director of the Defense Con- tract Audit Agency (or any successor agency) may require by subpoena the production of any records of a contractor that the Secretary of Defense is authorized to audit or examine under subsection (b). (2) ENFORCEMENT OF SUBPOENA.—Any such subpoena, in the case of contumacy or refusal to obey, shall be enforceable by order of an ap- propriate United States district court. (3) AUTHORITY NOT DELEGABLE.—The author- ity provided by paragraph (1) may not be re- delegated. (d) COMPTROLLER GENERAL AUTHORITY.— (1) IN GENERAL.—Except as provided in para- graph (2), each contract awarded after using procedures other than sealed bid procedures shall provide that the Comptroller General and his representatives are authorized to ex- amine any records of the contractor, or any of its subcontractors, that directly pertain to, and involve transactions relating to, the con- tract or subcontract and to interview any cur- rent employee regarding such transactions. (2) EXCEPTION FOR FOREIGN CONTRACTOR OR SUBCONTRACTOR.—Paragraph (1) does not apply to a contract or subcontract with a foreign Page 2571 TITLE 10—ARMED FORCES § 3841 contractor or foreign subcontractor if the head of the agency concerned determines, with the concurrence of the Comptroller General or his designee, that the application of that para- graph to the contract or subcontract would not be in the public interest. However, the concurrence of the Comptroller General or his designee is not required— (A) where the contractor or subcontractor is a foreign government or agency thereof or is precluded by the laws of the country in- volved from making its records available for examination; and (B) where the head of the agency deter- mines, after taking into account the price and availability of the property and services from United States sources, that the public interest would be best served by not apply- ing paragraph (1). (3) ADDITIONAL RECORDS NOT REQUIRED.— Paragraph (1) may not be construed to require a contractor or subcontractor to create or maintain any record that the contractor or subcontractor does not maintain in the ordi- nary course of business or pursuant to another provision of law. (e) LIMITATION ON AUDITS RELATING TO INDI- RECT COSTS.—The head of an agency may not perform an audit of indirect costs under a con- tract, subcontract, or modification before or after entering into the contract, subcontract, or modification in any case in which the con- tracting officer determines that the objectives of the audit can reasonably be met by accepting the results of an audit that was conducted by any other department or agency of the Federal Government within one year preceding the date of the contracting officer’s determination. (f) LIMITATION.—The authority of the head of an agency under subsection (b), and the author- ity of the Comptroller General under subsection (d), with respect to a contract or subcontract shall expire three years after final payment under such contract or subcontract. (g) INAPPLICABILITY TO CERTAIN CONTRACTS.— This section does not apply to the following con- tracts: (1) Contracts for utility services at rates not exceeding those established to apply uni- formly to the public, plus any applicable rea- sonable connection charge. (2) A contract or subcontract that is for an amount not greater than the simplified acqui- sition threshold. (h) FORMS OF ORIGINAL RECORD STORAGE.— Nothing in this section shall be construed to preclude a contractor from duplicating or stor- ing original records in electronic form. (i) USE OF IMAGES OF ORIGINAL RECORDS.—The head of an agency shall not require a contractor or subcontractor to provide original records in an audit carried out pursuant to this section if the contractor or subcontractor provides photo- graphic or electronic images of the original records and meets the following requirements: (1) The contractor or subcontractor has es- tablished procedures to ensure that the imag- ing process preserves the integrity, reliability, and security of the original records. (2) The contractor or subcontractor main- tains an effective indexing system to permit timely and convenient access to the imaged records. (3) The contractor or subcontractor retains the original records for a minimum of one year after imaging to permit periodic valida- tion of the imaging systems. (Added and amended Pub. L. 116–283, div. A, title XVIII, § 1835(a), (b), Jan. 1, 2021, 134 Stat. 4239.) Editorial Notes CODIFICATION The text of subsecs. (a), (e), (g), (h), and (i) of section 2313 of this title, which were transferred to this section, redesignated as subsecs. (b), (f), (h), (i), and (j), respec- tively, and amended by Pub. L. 116–283, § 1835(b)(1)–(3), (6), was based on Pub. L. 103–355, title II, § 2201(a)(1), Oct. 13, 1994, 108 Stat. 3316, which amended section 2313 generally. The text of subsec. (b) of section 2313 of this title, which was transferred to this section, redesignated as subsec. (c), and amended by Pub. L. 116–283, § 1835(b)(1), (4), was based on Pub. L. 103–355, title II, § 2201(a)(1), Oct. 13, 1994, 108 Stat. 3316; Pub. L. 104–106, div. A, title XV, § 1502(a)(1), Feb. 10, 1996, 110 Stat. 502; Pub. L. 106–65, div. A, title X, § 1032(a)(2), Oct. 5, 1999, 113 Stat. 751. The text of subsec. (c) of section 2313 of this title, which was transferred to this section, redesignated as subsec. (d), and amended by Pub. L. 116–283, § 1835(b)(1), (5), was based on Pub. L. 103–355, title II, § 2201(a)(1), Oct. 13, 1994, 108 Stat. 3317; Pub. L. 110–417, [div. A], title VIII, § 871(b), Oct. 14, 2008, 122 Stat. 4555. The text of subsec. (d) of section 2313 of this title, which was transferred to this section and redesignated as subsec. (e) by Pub. L. 116–283, § 1835(b)(1), was based on Pub. L. 104–201, div. A, title VIII, § 808(a), Sept. 23, 1996, 110 Stat. 2607, which amended subsec. (d) gen- erally. The text of subsec. (f) of section 2313 of this title, which was transferred to this section and redesignated as subsec. (e) by Pub. L. 116–283, § 1835(b)(1), was based on Pub. L. 103–355, title II, § 2201(a)(1), title IV, § 4102(c), Oct. 13, 1994, 108 Stat. 3317, 3340. PRIOR PROVISIONS A prior section 3841, added Pub. L. 85–861, § 1(94), Sept. 2, 1958, 72 Stat. 1483, related to separation or transfer to retired reserve of reserve nurses and medical specialists at age 50 if in a reserve grade below major, prior to re- peal by Pub. L. 86–559, § 1(22), June 30, 1960, 74 Stat. 271. AMENDMENTS 2021—Subsec. (a). Pub. L. 116–283, § 1835(b)(2), redesig- nated subsec. (i) of section 2313 of this title as subsec. (a) of this section. Subsec. (b). Pub. L. 116–283, § 1835(b)(1), (3), redesig- nated subsec. (a) of section 2313 of this title as subsec. (b) of this section, realigned margins of pars. (1) and (2), and substituted ‘‘made by that agency under a chapter 137 legacy provision’’ for ‘‘made by that agency under this chapter’’ in par. (1)(A) and ‘‘chapter 271’’ for ‘‘sec- tion 2306a’’ in par. (2). Subsec. (c). Pub. L. 116–283, § 1835(b)(1), (4), redesig- nated subsec. (b) of section 2313 of this title as subsec. (c) of this section, inserted heading and substituted ‘‘subsection (b)’’ for ‘‘subsection (a)’’ in par. (1), and in- serted headings and realigned margins of pars. (2) and (3). Subsec. (d). Pub. L. 116–283, § 1835(b)(1), (5), redesig- nated subsec. (c) of section 2313 of this title as subsec. (d) of this section and inserted headings and realigned margins of pars. (1) to (3). Subsec. (e). Pub. L. 116–283, § 1835(b)(1), redesignated subsec. (d) of section 2313 of this title as subsec. (e) of this section. Subsec. (f). Pub. L. 116–283, § 1835(b)(1), (6), redesig- nated subsec. (e) of section 2313 of this title as subsec. Page 2572 TITLE 10—ARMED FORCES § 3842 (f) of this section and substituted ‘‘subsection (b)’’ for ‘‘subsection (a)’’ and ‘‘subsection (d)’’ for ‘‘subsection (c)’’. Subsecs. (g) to (i). Pub. L. 116–283, § 1835(b)(1), redesig- nated subsecs. (f) to (h) of section 2313 of this title as subsecs. (g) to (i), respectively, of this section. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section and amendment by Pub. L. 116–283 effective Jan. 1, 2022, with additional provisions for delayed im- plementation and applicability of existing law, see sec- tion 1801(d) of Pub. L. 116–283, set out as an Effective Date of 2021 Amendment note preceding section 3001 of this title. EXCEPTION FROM RECORDS EXAMINATION REQUIREMENT Requirements under subsecs. (b)(2)(A)–(C) and (c) of this section (former subsecs. (a)(2)(A)–(C) and (b) of sec- tion 2313 of this title) not applicable to certain con- tracts valued at less than $7,500,000 awarded to small business or nontraditional defense contractors, with certain exceptions, see section 873(b) of Pub. L. 114–92, set out in a Pilot Program for Streamlining Awards for Innovative Technology Projects note under section 3702 of this title. DEPARTMENT OF DEFENSE ACCESS TO, USE OF, AND SAFEGUARDS AND PROTECTIONS FOR CONTRACTOR IN- TERNAL AUDIT REPORTS Pub. L. 112–239, div. A, title VIII, § 832, Jan. 2, 2013, 126 Stat. 1844, provided that: ‘‘(a) REVISED GUIDANCE REQUIRED.—Not later than 180 days after the date of the enactment of this Act [Jan. 2, 2013], the Director of the Defense Contract Audit Agency shall revise guidance on access to defense con- tractor internal audit reports (including the Contract Audit Manual) to incorporate the requirements of this section. ‘‘(b) DOCUMENTATION REQUIREMENTS.—The revised guidance shall ensure that requests for access to de- fense contractor internal audit reports are appro- priately documented. The required documentation shall include, at a minimum, the following: ‘‘(1) Written determination that access to such re- ports is necessary to complete required evaluations of contractor business systems. ‘‘(2) A copy of any request from the Defense Con- tract Audit Agency to a contractor for access to such reports. ‘‘(3) A record of response received from the con- tractor, including the contractor’s rationale or jus- tification if access to requested reports was not granted. ‘‘(b) [sic] SAFEGUARDS AND PROTECTIONS.—The re- vised guidance shall include appropriate safeguards and protections to ensure that contractor internal audit re- ports cannot be used by the Defense Contract Audit Agency for any purpose other than evaluating and test- ing the efficacy of contractor internal controls and the reliability of associated contractor business systems. ‘‘(c) RISK-BASED AUDITING.—A determination by the Defense Contract Audit Agency that a contractor has a sound system of internal controls shall provide the basis for increased reliance on contractor business sys- tems or a reduced level of testing with regard to spe- cific audits, as appropriate. Internal audit reports pro- vided by a contractor pursuant to this section may be considered in determining whether or not a contractor has a sound system of internal controls, but shall not be the sole basis for such a determination. ‘‘(d) COMPTROLLER GENERAL REVIEW.—Not later than one year after the date of the enactment of this Act, the Comptroller General of the United States shall ini- tiate a review of the documentation required by sub- section (a). Not later than 90 days after completion of the review, the Comptroller General shall submit to the congressional defense committees [Committees on Armed Services and Appropriations of the Senate and the House of Representatives] a report on the results of the review, with findings and recommendations for im- proving the audit processes of the Defense Contract Audit Agency.’’ Executive Documents EXEMPTION OF FUNCTIONS Functions with respect to purchases authorized to be made outside limits of United States or District of Co- lumbia under Foreign Assistance Act of 1961, as amend- ed, as exempt, see Ex. Ord. No. 11223, May 12, 1965, 30 F.R. 6635, set out as a note under section 2393 of Title 22, Foreign Relations and Intercourse. FOREIGN CONTRACTORS Secretaries of Defense, Army, Navy, or Air Force, or their designees, to determine, prior to exercising au- thority provided in amendment of this section by Pub. L. 89–607 to exempt certain contracts with foreign con- tractors from requirement of an examination-of- records clause, that all reasonable efforts have been made to include such examination-of-records clause, as required by par. (11) of Part I of Ex. Ord. No. 10789, and that alternate sources of supply are not reasonably available, see par. (11) of Part I of Ex. Ord. No. 10789, Nov. 14, 1958, 23 F.R. 8897, as amended, set out as a note under section 1431 of Title 50, War and National De- fense. § 3842. Performance of incurred cost audits (a) COMPLIANCE WITH STANDARDS OF RISK AND MATERIALITY.—Not later than October 1, 2020, the Secretary of Defense shall comply with com- mercially accepted standards of risk and materi- ality in the performance of each incurred cost audit of costs associated with a contract of the Department of Defense. (b) CONDITIONS FOR THE USE OF QUALIFIED AUDITORS TO PERFORM INCURRED COST AUDITS.— (1) To support the need of the Department of De- fense for timely and effective incurred cost au- dits, and to ensure that the Defense Contract Audit Agency is able to allocate resources to higher-risk and more complex audits, the Sec- retary of Defense shall use qualified private auditors to perform a sufficient number of in- curred cost audits of contracts of the Depart- ment of Defense to— (A) eliminate, by October 1, 2020, any back- log of incurred cost audits of the Defense Con- tract Audit Agency; (B) ensure that incurred cost audits are com- pleted not later than one year after the date of receipt of a qualified incurred cost submission; (C) maintain an appropriate mix of Govern- ment and private sector capacity to meet the current and future needs of the Department of Defense for the performance of incurred cost audits; (D) ensure that qualified private auditors perform incurred cost audits on an ongoing basis to improve the efficiency and effective- ness of the performance of incurred cost au- dits; and (E) limit multiyear auditing to ensure that multiyear auditing is conducted only— (i) to address outstanding incurred cost au- dits for which a qualified incurred cost sub- mission was submitted to the Defense Con- tract Audit Agency more than 12 months be- fore the date of the enactment of this sec- tion; or