242.72-CONTRACTOR MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM
242.7200 Scope of subpart.
This subpart provides policies, procedures,
and standards for use in the evaluation of a contractor's material management
and accounting system (MMAS).
"Material management and accounting system"
and "valid time-phased requirements" are defined in the clause at 252.242-7004,
Material Management and Accounting System.
DoD policy is for all contractors to have
an MMAS that-
(a) Reasonably forecasts material requirements;
(b) Ensures the costs of purchased and
fabricated material charged or allocated to a contract are based on valid
(c) Maintains a consistent, equitable,
and unbiased logic for costing of material transactions; and
(d) Conforms to the standards at 252.242-7004(f)
when the contractor has cost-reimbursement or fixed-price contracts exceeding
the simplified acquisition threshold, with progress or other contract financing
provisions, except when all of the contracts and subcontracts are awarded
under the set-aside or Section 8(a) procedures of FAR Part 19.
242.7203 MMAS disclosure,
demonstration, and maintenance requirements.
(a) A large business contractor is
subject to MMAS disclosure, demonstration, and maintenance if in its preceding
fiscal year the contractor received DoD prime contracts or subcontracts
(including modifications) totaling-
(1) $70 million or more; or
(b) After the administrative contracting
officer determines the contractor's MMAS is adequate (see 242.7204(b)),
written disclosure will not be required for the next MMAS review unless
the contractor's policies, procedures, or practices have changed in the
interim period(s). Similarly, once the contractor demonstrates that its
MMAS contains no significant deficiencies, demonstration requirements for
subsequent reviews may be satisfied if internal audits are reasonably current
and contain sufficient transaction tests to demonstrate MMAS compliance
with each standard.
(2) $30 million or more (but less than
$70 million), and the contracting officer determines it to be in the best
interests of the Government (e.g., contractor disclosure, demonstration,
or other activities indicate significant MMAS problems exist).
(a) The contracting officer shall-
(1) Through use of the clause at 252.242-7004,
Material Management and Accounting System, apply the disclosure, demonstration,
and maintenance requirements to large business contractors meeting the
criteria in 242.7203(a);
(b) For contractors subject to the disclosure,
demonstration, and maintenance requirements, the administrative contracting
officer (ACO) determines the adequacy of the contractor's MMAS and pursues
correction of deficiencies.
(2) Consider whether to apply the disclosure,
demonstration, and maintenance requirements to other large business contractors
under 242.7203(a)(2) after concurrence from, or at the request of, the
administrative contracting officer; and
(3) Not apply the disclosure, demonstration,
and maintenance requirements to small businesses, educational institutions,
or nonprofit organizations.
(c) The contract auditor shall-
(1) Assist the ACO in evaluating the
(2) Assess the significance of contractor
deficiencies and provide the ACO an estimate of the resulting adverse material
impact to the Government; and
(3) Assist the ACO in evaluating the
contractor's correction of deficiencies.
242.7205 Review procedures.
(a) System evaluation. Cognizant
contract administration and audit activities shall jointly establish and
manage programs for evaluating the MMAS systems of contractors subject
to disclosure, demonstration, and maintenance requirements and annually
establish a schedule of contractors to be reviewed. They shall-
(1) Conduct reviews as a team effort.
(b) Disposition of evaluation team findings.
The team leader shall document the evaluation team findings and recommendations
in a report to the ACO. If there are significant MMAS deficiencies, the
report must provide an estimate of the adverse impact on the Government
resulting from those deficiencies.
(i) The administrative contracting
(2) Tailor reviews to take full advantage
of the day-to-day work done by both organizations.
(A) Appoints a team leader; and
(ii) The team leader-
(B) Ensures that the team includes appropriate
functional specialists (i.e., industrial specialists, engineer, property
administrator, auditor, etc.).
(3) Prepare a review report.
(4) Conduct a review every three years.
The ACO, with advice from the auditor, may lengthen or shorten the three-year
period based on a risk assessment of the contractor's past experience and
(1) Initial notification to the
contractor. The ACO shall immediately provide a copy of the
report to the contractor upon receipt from the team leader.
(i) The ACO shall notify the contractor
in a timely manner if there are no deficiencies.
(2) Evaluation of the contractor's response.
The administrative contracting officer, in consultation with the auditor,
evaluates the contractor's response and determines whether-
(ii) If there are deficiencies, the
ACO shall request the contractor to provide a written response within 30
days from the date of initial notification.
(iii) If the contractor agrees with
the report, the contractor has 60 days to correct any identified deficiencies
or submit a corrective action plan showing milestones and actions to eliminate
(iv) If the contractor disagrees, request
rationale in the written response.
(i) The MMAS contains deficiencies
which need correction;
(3) Reduction or Suspension of payments.
(ii) The deficiencies are significant
enough to result in the reduction or suspension of progress payments or
of payments under public vouchers; and
(iii) Proposed corrective actions (if
the contractor submitted them) are adequate to correct the deficiencies.
(i) When the administrative contracting
officer (ACO) determines that there is a significant MMAS deficiency, the
ACO shall reduce progress payment claims by an appropriate percentage based
on affected costs (in accordance with FAR 32.503-6) and/
(4) Notification of administrative contracting
or suspend questionable costs on public
vouchers in accordance with FAR 42.803). The reductions or suspensions
shall remain in effect until the ACO determines that-
(ii) The maximum payment adjustment is
the adverse material impact to the Government as specified in the team's
report. The ACO should use the maximum adjustment when the contractor did
not submit a corrective action plan with its response, or the plan is unacceptable.
In other cases, the ACO should consider the quality of the contractor's
self-assessment, demonstration, and corrective action plan in determining
the appropriate percentage.
(iii) As the contractor implements its
accepted corrective action plan, the ACO should reinstate a portion of
withheld amounts commensurate with the contractor's progress in making
corrections. However, the ACO shall not fully reinstate withheld amounts
until the contractor corrects the deficiency, or until the impact of the
deficiency becomes immaterial.
(i) The administrative contracting
officer (ACO) shall notify the contractor in writing (copy to auditor and
functional specialists) of-
(5) Monitoring contractor's corrective
action. The administrative contracting officer (ACO) and auditor shall
monitor the contractor's progress in correcting deficiencies. If the contractor
fails to make adequate progress, the ACO shall take further action. Actions
for consideration may include-
(A) Deficiencies needing correction;
(ii) The Government does not approve or
disapprove the contractor's MMAS system. ACO notifications should avoid
any such implications.
(B) Acceptability of the contractor's
corrective action plan (if one was submitted) or the need for a corrective
action plan; and
(C) Any decision to reduce or suspend
progress payments or public vouchers because of significant deficiencies.
(iii) From the time the ACO determines
that there is a significant material management and accounting system deficiency
until the time the deficiency is corrected, all field pricing reports for
that contractor shall contain a recommendation relating to proposed cost
or pricing data adjustments necessary to protect the Government's interests.
(iv) The ACO should consider the effect
of significant MMAS deficiencies in reviews of the contractor's estimating
(i) Elevate the issue to higher level
(ii) Further reduce or suspend progress
(iii) Notify the contractor of the inadequacy
of the contractor's cost estimating system and/or cost accounting system;
(iv) Take appropriate contractual action,
i.e., disallow charges as unreasonable; and
(v) Issue cautions to contracting activities
regarding the award of future contracts.
242.7206 Contract clause.
Use the clause at 252.242-7004, Material
Management and Accounting System, in all solicitations and contracts exceeding
the simplified acquisition threshold that are not for the acquisition of
commercial items and-