Principles governing defense contract audit services

I. Introduction

This annex supersedes Annex VI entered into between the governments of the Kingdom of the Netherlands and the United States, dated April 18, 1985, concerning Principles Governing Defense Contract Audit Services and sets forth the terms, conditions and procedures under which the participating governments will provide one another with defense contract audit services upon request in support of defense contracts, subcontracts, and Foreign Military Sales (FMS) Letters of Offer and Acceptance contemplated or executed under the Memorandum of Understanding (MOU).

II. General Principles

The objective of this annex is to improve the effectiveness and efficiency of audit services available to the participating governments. Either government may request audit services from the other government. Both governments agree to perform the audits requested by the other government or otherwise required by this audit annex. In the event conflicts arise between any aspect of this annex and the laws of either participating government, the laws shall prevail. With notice to the other participating government, the purchasing government may elect to perform a specific audit in unusual circumstances, such as when the performing government can not satisfy an unusually short due date for an audit report.

Contract audit reports shall be advisory. The purchasing government shall retain authority and responsibility for negotiating acceptable prices and contract settlements with contractors. Purchases by the Netherlands under the FMS Program will be handled under the U.S. FMS procedures in existence at the time of acceptance of the FMS agreement.

When performing an audit for the U.S., the Netherlands agrees to use current U.S. cost principles and applicable cost accounting standards. The Netherlands also agrees that the U.S. will use its own cost principles when performing an audit for the Netherlands. All audit reports will be written in English. Consistent with U.S. cost principles and applicable cost accounting standards, the performing government may use the same audit methods it customarily uses for its own contracts, and shall determine the organizations and personnel to be involved.

Neither participating government shall duplicate or review the work of the other. The governments shall hold periodic discussions to evaluate the operational effectiveness of the reciprocal agreement. In addition, each government agrees that compliance with this audit annex will be evaluated at least once every three years by its own appropriate review and oversight organization. A copy of the results of such reviews shall be provided to the other government.

Solicitations, contracts, and subcontracts shall contain suitable provisions to enable the participating governments to act for and on behalf of one another under this annex and shall authorize access to contractor facilities and records as necessary. Nothing in this annex is to be construed to limit a purchasing government’s rights or remedies, including access to contractors records, as may be authorized by contract or the laws of the purchasing government.

III. Scope of Audit Annex

This annex encompasses audits in support of contracts and subcontracts for defense equipment and services contemplated or executed under the MOU and FMS letters of offer and acceptance. It does not cover audits for architecture and engineering, construction, base support, operation and maintenance, or banking services, nor does it cover audits of universities, and contractors solely in the business of supporting the U.S. presence in the Netherlands. For purposes of this annex, defense contract audit services shall include the following types of audits:

Forward Pricing Audits: Review of proposals submitted in contemplation of a contract award or a contract modification, to determine the allowability, allocability, and reasonableness of each proposed cost element.

Accounting System Audits: Review of contractor accounting records, procedures, and systems to determine their accuracy, currency, completeness, and compliance with contract requirements.

Estimating System Audit: Evaluation of cost estimating systems.

Post Award Audits: Verify after contract award the currency, accuracy, and completeness of cost or pricing data submitted to the purchasing government as of the completion of negotiations. Post award audits shall be automatically performed; that is, without a request, by both governments whenever a contract or contract modification has been awarded that exceeds the then current U.S. threshold for mandatory post award audits (the current threshold is $ 50,000,000) and the purchasing government relied upon certified cost or pricing data submitted by a contractor. For contract awards less than this threshold, in which the purchasing government relied upon certified cost or pricing data submitted by a contractor, post award audits will be performed based upon a sampling approach devised by the performing government or whenever there are indications that a post award audit is appropriate based on prior experience with a contractor. In addition, other post award audits will be performed upon request of the purchasing government.

Reimbursement Vouchers Audits: Verify payment vouchers submitted under cost reimbursement contracts or other contracts with cost reimbursement features (e.g. material reimbursement) and recommend cost disallowances when appropriate.

Audits of Disclosed Accounting Practices: Verify contractor compliance with disclosed accounting practices and contractual accounting requirements.

Overhead Cost Audits: Evaluate overhead cost records prior to overhead settlements.

Termination Audits: Evaluate proposed termination costs and contract cost records prior to termination settlements.

Final Pricing Audits: Review and verify actual costs incurred in the performance of cost reimbursement and fixed price incentive contracts for purposes of establishing the final cost or price.

Other: Audit services considered necessary and requested by contracting country.

IV. Procedures

Requests for contract audit services in the Netherlands shall be sent with a copy of the contractor’s proposal (if applicable) by air mail to: Defense Contract Management Command, International Brussels/D APO New York, NY 09667-6207

A copy of each audit request shall be forwarded directly by air mail to:

The Ministry of Defense

Director Audit Agency

Postbus 20701

2500 ES The Hague

The Netherlands

All requests for audits in the Netherlands will also be sent by telephonic facsimile to the following:

DCMR, International – Brussels/D

Facsimile Telephone Number: 32 2 6487401

Ministry of Defense, Director Audit Agency

Facsimile Telephone Number: 31 70 3187596

Requests for contract audit services in the United States shall be sent by telephonic facsimile, followed by written request with a copy of the proposal (if applicable) sent by air mail, to:

Defense Contract Management Area Office, New York

DoD Central Control Point

201 Varick St.

New York, NY 10014-4811

USA

Facsimile Telephone Number(212) 807-3343

Requests for audits shall specify the type of audit services needed, the contractor, the contractor’s address, the subcontractor and address (if applicable), the proposal (if one is to be audited), any items requiring special review, the calendar date (not the number days after receipt of audit request) that the audit is needed by, a point of contact, telephone number, and facsimile telephone number. Acceptance of requests shall be acknowledged by telephonic facsimile by the performing government and a point of contact, telephone number, and facsimile number shall be provided.